Transfer of Property Notes | B.A. LL.B. (Five Year Course) Semester 7 | Mumbai University | munotes

(b) Imbedded in the earth, as in the case of walls or buildings.

(c) Attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

Clause (c) is the one that is tested. It is not enough that a thing is fixed to a building. It must be fixed there so that the building can be enjoyed better and permanently. Doors and windows are attached for the permanent beneficial enjoyment of the house, so they are immovable. A ceiling fan or a picture hung on a hook is not: the house is not being enjoyed better as a house, the fan is simply being used, and the attachment is for the enjoyment of the thing itself.

Two tests are usually applied together to a fixture. The degree of attachment, meaning how firmly the thing is fixed and how much damage removal would do; and the object of attachment, meaning why it was fixed there at all. The second is the more important, and it is the one section 3(c) writes into the statute.

The three exclusions, and why standing timber is the hard one

Standing timber, growing crops and grass are excluded from immovable property by section 3 of the Act and again by section 2(6) of the Registration Act. Crops and grass are straightforward: they are grown to be cut, they have a short life, and nobody buys land in order to keep the standing wheat on it.

Timber is where students lose marks, because a tree is rooted in the earth and so answers the definition of "attached to the earth" in section 3(a). The distinction is between a timber tree and standing timber.

A tree growing and drawing nourishment from the soil, expected to remain there, is immovable property. The same tree becomes standing timber when the intention is that it should be cut and used as timber, and it is to be cut reasonably soon rather than allowed to grow on. So the classification depends on the purpose the parties have for the tree, not on the species. Neem, mango and jackfruit trees have all been held to be immovable property while they are being kept for their fruit or shade, and the same trees sold to a contractor for felling within a season are standing timber and therefore movable.

"Benefits to arise out of land"

This phrase in both positive definitions carries more than a beginner expects. It means that a right which is not itself a piece of ground can still be immovable property, because it issues out of land.

The Registration Act names some of them: hereditary allowances, rights to ways, lights, ferries and fisheries. Others recognised in practice are the right to collect rent from land, the right to collect dues at a market or fair held on land, and the right to catch fish in a particular stretch of water. A mortgage debt secured on land is a benefit arising out of land. A right of way over a neighbour's field, which is an easement and the subject of Module III, is immovable property in the hands of the person who has it.

A worked example

Vaishali owns a bungalow at Vasai with a compound. She agrees to sell to Girish, for one lump sum, the following: the bungalow; the twelve teak trees in the compound, which Girish tells her he will fell and sell to a furniture workshop within the year; the standing paddy in the strip behind the house; the overhead water tank, which rests on a concrete platform built into the ground; and the two air conditioners fitted into the bedroom windows.

Work through it item by item.

The bungalow is imbedded in the earth under section 3(b), and it is named in terms in section 2(6) of the Registration Act. Immovable.

The teak trees are rooted in the earth, so they answer section 3(a). But the agreed purpose is that Girish will cut them shortly and use the wood. That makes them standing timber, and section 3 of the Act expressly takes standing timber out of immovable property. Movable.

The paddy is a growing crop, excluded by name. Movable.

The water tank is attached to a platform which is itself imbedded in the earth, and it is there so that the house has a permanent water supply. That is clause (c) exactly: attached to what is imbedded, for the permanent beneficial enjoyment of the house. Immovable.

The air conditioners are fitted into window openings and can be lifted out leaving the wall as it was. They are there for their own use, not so that the house may be enjoyed better as a house. Movable.

The practical consequence is the point of the exercise. The bungalow and the tank must be conveyed by a registered sale deed under section 54, because their value is well above a hundred rupees. The trees, the paddy and the air conditioners are movables and pass by delivery under the Sale of Goods Act 1930. One transaction, two legal regimes, and the price should really have been apportioned.

What it does NOT mean

It does not mean that anything fixed to the ground is immovable. Machinery bolted to a floor is the standard illustration. If it is bolted down only to keep it steady while it runs, it stays movable, because the object of the attachment is the better working of the machine and not the better enjoyment of the building.

It does not mean the label the parties use decides it. Calling the teak trees "immovable property" in the deed does not make them so. The classification is a question of law on the facts, and the courts look at what was intended to happen to the thing.

It does not mean a tree is always immovable. See above. The same tree can be either, depending on whether it is being kept or being cut.

It does not mean the Act defines "property". It does not. It defines only "immoveable property", and only by exclusion. A student who writes that section 3 defines property has misread the section.

Distinctions

Quick revision

• The Act does not define "property"; section 3 defines "immoveable property" only by saying what it excludes: standing timber, growing crops, grass.
• The positive definitions are section 3(26) of the General Clauses Act 1897 and section 2(6) of the Registration Act 1908.
• "Attached to the earth" in section 3 has three limbs: rooted; imbedded; attached to what is imbedded for the permanent beneficial enjoyment of that thing.
• Fixtures: ask about the object of the attachment more than the degree.
• Timber tree is immovable; standing timber is movable. The intention about the tree decides.
• "Benefits to arise out of land" are immovable: rights of way, ferries, fisheries, the right to collect rent.
• Movable property is defined by subtraction: everything that is not immovable, section 3(36) General Clauses Act.
• Why it matters: section 54 requires a registered instrument for immovable property worth a hundred rupees or more, and Module IV's Registration Act is triggered by the same line.

Test yourself

1. Does the Transfer of Property Act 1882 define "property"? No. It defines only "immoveable property", and only negatively, in section 3: the term does not include standing timber, growing crops or grass. The positive content comes from section 3(26) of the General Clauses Act 1897 and section 2(6) of the Registration Act 1908.

2. Ashok sells the mango trees in his orchard to a fruit merchant, who is to take the fruit for the next ten years. Movable or immovable? Immovable. The trees are rooted in the earth under section 3(a), and the arrangement is that they stay in the ground and keep growing so that the fruit can be taken. They are timber trees kept for their produce, not standing timber, so the exclusion in section 3 does not apply. What is sold is also a benefit arising out of land.

3. State the three limbs of "attached to the earth". Rooted in the earth, as with trees and shrubs; imbedded in the earth, as with walls or buildings; and attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

4. A weaving loom is bolted to the factory floor so that it does not shake. Is it immovable? No. The degree of attachment is real but the object of the attachment is the working of the loom, not the better enjoyment of the building. It does not answer the third limb of section 3, so it remains movable.

5. Why does the classification matter in practice? Because it selects the legal regime. Immovable property of a hundred rupees or more can be sold only by a registered instrument under section 54, and the transactions in section 17 of the Registration Act 1908 must be registered. Movable property passes by delivery under the Sale of Goods Act 1930.

6. Is a right to collect rent from a shop immovable property? Yes. It is a benefit arising out of land within section 3(26) of the General Clauses Act 1897 and section 2(6) of the Registration Act 1908, even though the right itself is not a physical thing.

Three, each witness must have signed the instrument in the presence of the executant. This runs the other way from limb two. The executant need not see the witness's experience, but the executant must see the witness sign.

Four, they need not be present at the same time. The definition says so in terms. Witness A can attest in the morning and witness B in the evening.

Five, no particular form of attestation is necessary. The word "witness" need not appear anywhere.

The requirement the examiner tests is animus attestandi, the intention to attest. The phrase means the mind of attesting: a person signs as a witness to the execution, and not for some other reason. So a Sub-Registrar who signs the endorsement, an identifying witness who signs to say he knows the parties, or a scribe who signs to say he wrote the document, is not an attesting witness, because none of them signed in order to witness the execution. This is why a document can carry four signatures and still not be attested.

"Registered"

The Act provides that "registered" means registered in any part of the territories to which the Act extends, under the law for the time being in force regulating the registration of documents. That law is the Registration Act 1908, which is Module IV of this syllabus and is taught from [What the Registration Act Does, and the Registration Establishment] onwards.

"Actionable claim"

The Act provides that an actionable claim means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

Read slowly, it covers two things: an unsecured debt, and a beneficial interest in movable property that the claimant does not have in his possession. A secured debt is excluded by name. The transfer of actionable claims is dealt with in [Actionable Claims].

"Notice", and its three forms

The Act provides that a person is said to have notice of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.

That single sentence contains the first two forms.

Actual or express notice is the first limb: he actually knows.

Constructive notice is the second limb: he does not actually know, but the law treats him as knowing because he ought to have known. Constructive notice arises in two ways under the section itself:

• Wilful abstention from an enquiry or search which he ought to have made. This is deliberate not-looking. A buyer who is told the seller's title deeds are with a bank and pointedly does not ask why is wilfully abstaining.
• Gross negligence. Not mere carelessness, but a degree of carelessness so serious that the law will not let the person profit from it.

Imputed notice is the third form and comes from Explanation III: notice acquired by an agent is treated as the principal's notice.

The three Explanations

Explanation I: registration is notice. Where a transaction relating to immovable property is required by law to be, and has been, effected by a registered instrument, any person acquiring the property, or any part, share or interest in it, is deemed to have notice of that instrument from the date of registration.

The Explanation carries provisos, and they matter. The instrument must have been registered and the registration completed in the manner prescribed by the Registration Act 1908 and the rules under it, and the instrument or memorandum must have been duly entered or filed in the books kept under section 51 of that Act. So a registration that was not properly completed does not give notice to the world.

Note the two conditions in the opening words: the transaction must be one that the law requires to be registered, and it must have been registered. Registering a document that did not need registration does not fix everyone with notice of it.

Explanation II: possession is notice. Any person acquiring immovable property, or a share or interest in it, is deemed to have notice of the title, if any, of any person who is for the time being in actual possession of it.

This is the most practical rule in the section. A buyer must look at the land and ask who is on it. If a tenant, or a person under an agreement of sale, is in actual possession, the buyer is fixed with notice of whatever title that person has, whether or not he asked. It is also the rule that makes the possession in [Part Performance] dangerous for a later purchaser.

Explanation III: an agent's notice is the principal's. A person is deemed to have had notice of a fact if his agent acquires notice of it while acting on his behalf in the course of the business to which that fact is material.

The three conditions are visible in the words: the agent must acquire the notice while acting for the principal, in the course of that business, and the fact must be material to it. Something an agent learned years earlier in another job is not imputed.

The proviso is the fairness valve. If the agent fraudulently conceals the fact, the principal is not charged with notice of it as against any person who was a party to the fraud or otherwise knew of it. So the principal is protected against a dishonest agent, but only against people who were in on the fraud.

A worked example

Farid agrees to buy a flat at Kurla from Meera. Three facts are true and Farid knows none of them.

One. Meera had mortgaged the flat to a bank two years earlier by a registered deed, properly registered and entered in the book under section 51 of the Registration Act 1908.

Two. A tenant, Sanjay, has been living in the flat for four years under an oral arrangement and is there on the day Farid inspects.

Three. Farid's advocate, engaged to do the title search for this very purchase, found a decree against Meera in the register and forgot to mention it.

Take them in turn.

The mortgage is caught by Explanation I. A mortgage of immovable property for that value must be registered, it was registered, and the registration was completed properly. Farid is deemed to have notice from the date of registration, and it makes no difference that he never opened the register.

Sanjay's tenancy is caught by Explanation II. Sanjay was in actual possession, so Farid has notice of Sanjay's title whether or not he asked who the man in the flat was. Had Farid asked and been lied to, the answer would be the same: the Explanation is about possession, not about enquiry.

The decree is caught by Explanation III. The advocate acquired the notice while acting for Farid, in the course of the very business of buying this flat, and the fact was material to it. It is imputed to Farid. If the advocate had fraudulently concealed it, the proviso would protect Farid, but only against Meera if she was party to the fraud.

Farid therefore buys with notice of all three, and cannot claim any of the protections in this Act that are given only to a transferee without notice.

What it does NOT mean

Attestation does not mean the witness knows what is in the document. He witnesses the execution, not the contents. A witness who cannot read may still attest.

A party to the document cannot attest it. The witness attests the executant's signing; a person cannot witness his own execution. The mortgagee, however, has been held capable of attesting in some circumstances, which is why the safe practice is to use independent witnesses.

Constructive notice is not the same as suspicion. The section requires wilful abstention or gross negligence. A buyer who makes the ordinary enquiries and finds nothing is not fixed with notice merely because something existed.

Registration is not notice of everything. Explanation I applies only where registration was required by law and was properly completed. A voluntarily registered document does not fix the world with notice.

Possession must be actual. Explanation II speaks of a person "for the time being in actual possession". A person with a right to possession who is not on the land does not attract it.

Distinctions

Quick revision

• Section 3 defines "instrument" as a non-testamentary instrument, so a will is outside it.
• Attestation: two or more witnesses; each saw the executant sign, or saw another sign by his direction, or got a personal acknowledgement; each signed in the presence of the executant; they need not be together; no particular form.
• The unwritten requirement is animus attestandi, the intention to attest. A scribe or an identifying witness does not qualify.
• Notice has three forms: actual, constructive, imputed.
• Constructive notice arises from wilful abstention from an enquiry one ought to make, or gross negligence.
• Explanation I: a required and properly completed registration is notice from the date of registration.
• Explanation II: actual possession is notice of the possessor's title.
• Explanation III: an agent's notice is the principal's, if acquired in that business on a material fact; the proviso saves the principal where the agent fraudulently concealed.
• Attestation matters because section 59 (mortgage) and section 123 (gift) require it.

Test yourself

1. A mortgage deed is signed by the mortgagor, by the scribe who wrote it, and by one neighbour who watched the mortgagor sign. Is it attested within section 3? No. Section 3 requires two or more attesting witnesses. The scribe signed to say he wrote the document, not to witness the execution, so he lacks animus attestandi and does not count. Only the neighbour qualifies, which is one witness, and one is not enough. The deed is not attested, and a mortgage that is not attested does not satisfy section 59.

2. Can a person attest a document if he did not see it signed? Yes, on the third limb. It is enough that he received from the executant a personal acknowledgement of the signature or mark. He must still sign the instrument in the presence of the executant.

3. Must both attesting witnesses be present at the same time? No. Section 3 provides in terms that it is not necessary that more than one of the witnesses should have been present at the same time.

4. Priya buys a plot without visiting it. A man has been farming it for six years under an unregistered agreement of sale. Does Priya have notice? Yes, by Explanation II. He was in actual possession for the time being, so Priya is deemed to have notice of his title, and her not having gone to look makes no difference.

5. What are the two conditions before Explanation I fixes a buyer with notice of a registered document? That the transaction was one which the law required to be effected by a registered instrument and it has been so effected, and that the registration was completed in the manner prescribed by the Registration Act 1908, with the instrument or memorandum duly entered or filed in the books kept under section 51 of that Act.

6. An agent buying land for his principal is told by the seller about an easement over the land, and hides it because he is being paid by the seller. Is the principal fixed with notice? Under Explanation III the agent's notice would be imputed, but the proviso applies: where the agent fraudulently conceals the fact, the principal is not charged with notice as against a person who was a party to the fraud or otherwise knew of it. The seller was a party to it, so the principal is not fixed with notice as against the seller.

7. Is a debt secured by a mortgage of immovable property an actionable claim? No. The definition in section 3 expressly excludes a debt secured by mortgage of immoveable property, and also one secured by hypothecation or pledge of moveable property.

(d) save as provided by section 57 and Chapter IV of the Act, any transfer by operation of law or by, or in execution of, a decree or order of a Court of competent jurisdiction;

and nothing in Chapter II of the Act is to be deemed to affect any rule of Muhammadan law.

Clause (d) is the one that decides questions. A transfer by operation of law is one the law brings about without the parties choosing it: succession on death, insolvency, forfeiture, and the vesting that follows a court decree. A sale held by a court in execution of a decree is in the same category. None of these is a transfer by act of parties, so the Act's machinery does not apply to them, except as section 57 and Chapter IV, which is the law of mortgages, provide.

The saving of Muhammadan law is limited to Chapter II, meaning the general principles in sections 5 to 53A. It is the reason a hiba, a gift under Muhammadan law, does not have to satisfy section 123, which requires a registered and attested instrument. A hiba is valid on declaration, acceptance and delivery of possession. Chapter VII of the Act, which contains section 123, is not within the saving in terms, but the courts have read the saving as protecting the Muhammadan law of gifts, and the practical position is that a hiba is governed by that law.

Transfer and transmission

The Act uses the word transfer. Examiners also use its counterpart, transmission, and the pair is worth naming because the distinction is the one section 2(d) draws.

Transfer is the passing of property by the act of the parties: somebody conveys, and this Act governs it.

Transmission is the passing of property by operation of law, without any act of the parties: succession on death, devolution on an heir, vesting in an official assignee on insolvency, forfeiture, or the vesting that follows a court sale.

Three consequences follow, and they are the substance of an answer.

Transmission needs no instrument. Nothing is executed, so no question of registration or attestation arises, and the Stamp Act has no instrument to tax.

This Act does not govern it. Section 2(d) saves transfers by operation of law and in execution of a decree, save as provided by section 57 and Chapter IV.

The transmittee takes subject to what burdened the property. He steps into the previous owner's position rather than taking a fresh title, which is why a mortgage or a charge survives an inheritance.

Section 4: how this Act sits with two others

Section 4 provides that the chapters and sections of the Act which relate to contracts are to be taken as part of the Indian Contract Act 1872, and that sections 54 paragraphs 2 and 3, 59, 107 and 123 are to be read as supplemental to the Registration Act 1908.

The first half is why the Contract Act's rules on competence, free consent, lawful object and coercion apply to a transfer under this Act without being repeated in it. When section 7 says "every person competent to contract", it is pointing at sections 11 and 12 of the Contract Act.

The second half is why this subject has a Module IV at all. The four registration provisions of this Act are not free-standing; they are read together with the Registration Act, and a question about whether a sale deed had to be registered is answered from both statutes at once.

A worked example

Ramesh dies intestate, that is, without leaving a will. His flat at Dombivli passes to his two daughters as his heirs. One daughter, Sunita, later borrows money and her creditor obtains a decree, in execution of which the court sells her half share at auction to Bhavesh. Bhavesh then agrees to sell that half share to Kiran by a registered deed.

Three transfers, and only one of them is governed by this Act.

Ramesh to his daughters is succession. It happens by operation of law on his death, nobody executed anything, and it is saved by section 2(d). The Act does not apply, and neither does section 54.

Sunita to Bhavesh is a sale in execution of a decree of a competent court. It is saved by section 2(d) in terms, so the Act does not govern it either. Its validity is a question for the Code of Civil Procedure 1908 and the rules on execution sales.

Bhavesh to Kiran is a transfer by act of parties between two living persons. Section 5 is satisfied, and the Act applies in full: section 54 governs how the sale is made, section 55 sets the rights and liabilities of the two of them, and the Registration Act 1908 requires the deed to be registered.

What it does NOT mean

It does not mean the Act is confined to immovable property. Chapter II, sections 5 to 53A, applies to property of any kind, movable or immovable. The heading above section 5 says so: "Transfer of Property, whether moveable or immoveable". It is Chapters III to VII, sale, mortgage, lease, exchange and gift, that are largely about immovable property.

It does not mean the Act is exhaustive. Section 2(a) preserves other enactments, and section 2(b) preserves consistent contractual terms. The Act is a set of rules about transfers, not a code of property law.

It does not mean partition is a transfer. A partition among co-owners is generally not a transfer at all, because each co-owner already had an interest in every part and partition merely works out what belongs to whom. Nothing new is conveyed.

It does not mean a court sale can never touch the Act. Section 2(d) itself excepts section 57 and Chapter IV, and the doctrine of lis pendens in section 52, taught in [Lis Pendens], applies to transfers made while a suit is pending.

Distinctions

Quick revision

• The Act came into force on 1 July 1882 and is Act 4 of 1882.
• It applies to the whole of Maharashtra; the exemption power in section 1 targets sections 54 paragraphs 2 and 3, 59, 107 and 123, the four registration provisions.
• Section 2 saves: other unrepealed enactments; consistent contractual terms; rights under pre-Act legal relations; and, save as provided by section 57 and Chapter IV, transfers by operation of law or in execution of a decree.
• Chapter II does not affect any rule of Muhammadan law, which is why a hiba need not meet section 123.
• Section 4: the contract provisions of this Act are part of the Contract Act 1872; sections 54 paragraphs 2 and 3, 59, 107 and 123 are supplemental to the Registration Act 1908.
• Chapter II applies to movable and immovable property alike.

Test yourself

1. A house is auctioned by a court in execution of a money decree. Does the Transfer of Property Act govern the sale? No. Section 2(d) saves any transfer by, or in execution of, a decree or order of a competent court, save as provided by section 57 and Chapter IV. The sale is governed by the Code of Civil Procedure 1908.

2. Does the Act apply to movable property? Yes, in Chapter II. Sections 5 to 53A apply to property of any kind, and the heading above section 5 says "whether moveable or immoveable". The chapters on sale, mortgage, lease, exchange and gift are mainly concerned with immovable property.

3. Why does a Muslim gift not need a registered instrument under section 123? Because section 2 provides that nothing in Chapter II is to be deemed to affect any rule of Muhammadan law, and the courts have applied that saving to the law of gifts. A hiba is complete on declaration, acceptance and delivery of possession.

4. What does section 4 do? Two things. It makes the provisions of this Act which relate to contracts part of the Indian Contract Act 1872, so that Act's rules on competence and consent apply here. And it makes sections 54 paragraphs 2 and 3, 59, 107 and 123 supplemental to the Registration Act 1908.

5. Is a partition between two brothers a transfer under this Act? Generally no. Each co-owner already holds an interest in the whole, and partition adjusts possession and title between them rather than conveying anything new, so there is no transfer within section 5.

Because the transferee must be a living person, a transfer directly to an unborn child is not possible. What the Act permits instead is the machinery in section 13, taught in [Transfer for the Benefit of an Unborn Person].

Three, there must be a conveyance. An interest must pass out of the transferor and into the transferee.

Four, it may be in present or in future. This is the phrase students misread, and the misreading is worth marking. It qualifies the conveyance, not the property. A person may convey today an interest that will fall into possession later, for example a remainder after a life interest. What he cannot do is convey property that does not yet exist or that he does not yet have any interest in, because there is nothing to convey. A transfer of future property operates, if at all, as a contract to transfer when the property comes into existence.

A worked example

Anand owns a shop at Thane. Consider five arrangements.

One. Anand executes a registered deed conveying the shop to his brother Bharat. A living person conveys property to another living person. A transfer under section 5.

Two. Anand makes a will leaving the shop to Bharat. Not a transfer under section 5, because it takes effect only on Anand's death and there is no conveyance by a living person. The Indian Succession Act 1925 governs it.

Three. Anand executes a deed declaring that he holds the shop from today as trustee for his daughter. He has transferred to himself in a new capacity, which the words "or to himself" expressly permit.

Four. Anand and Bharat, who jointly inherited the shop from their father, execute a deed of partition by which Anand takes the shop and Bharat takes the godown. Not a transfer. Each already had an undivided interest in both properties; the deed works out their shares rather than conveying anything new.

Five. Anand agrees to sell Bharat the crop that his field will produce next season. The crop does not exist yet. This cannot operate as a transfer under section 5 for want of anything to convey; it takes effect as a contract to transfer the crop when it comes into being.

What it does NOT mean

"In present or in future" does not mean future property can be transferred. It means the conveyance may be of an interest that vests in possession later. A transfer of property not yet in existence operates as a contract.

It does not mean a transfer must be for consideration. A gift is a transfer under section 5 and is dealt with in [Gift]. Consideration is what separates the kinds of transfer, not what makes something a transfer.

It does not mean the transferee must be a natural person. A company or an unincorporated association counts, by the second paragraph of the section.

A surrender, a relinquishment or a family settlement is usually not a transfer. A surrender of a lease extinguishes an interest rather than conveying one; a relinquishment by a coparcener enlarges the shares of the others by operation of law; and a family settlement recognises pre-existing claims rather than creating new ones. Each of these is a standard answer point and each rests on the absence of a conveyance.

Distinctions

Quick revision

• Section 5: an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, or to himself and others.
• "Living person" includes a company, association or body of individuals, incorporated or not.
• A will is not a transfer, because it takes effect on death; hence "instrument" in section 3 is non-testamentary.
• "In present or in future" qualifies the conveyance, not the property. Future property cannot be transferred; the arrangement takes effect as a contract.
• A person may transfer to himself, added in 1929, which covers a declaration of trust.
• Not transfers: partition, surrender, relinquishment, family settlement, succession, and transfers by operation of law under section 2(d).
• A transfer directly to an unborn person is impossible; section 13 provides the route.

Test yourself

1. Is a will a transfer of property under section 5? No. Section 5 requires a conveyance by a living person to a living person. A will speaks only from death, so it falls outside the Act and is governed by the Indian Succession Act 1925.

2. What does "in present or in future" qualify? The conveyance, not the property. An interest may be conveyed now to fall into possession later. It does not permit a transfer of property that does not yet exist, which can only be a contract to transfer.

3. Can a man transfer property to himself? Yes. Section 5 expressly allows a transfer to himself, or to himself and one or more other living persons. The clearest instance is a declaration that he holds his own property as trustee for another.

4. Two brothers divide the ancestral house between them by a deed. Transfer or not? Not a transfer. Each brother already held an undivided interest in the whole, so the deed adjusts their existing rights instead of conveying a new interest.

5. Is a partnership firm a "living person" for section 5? Yes. The second paragraph of section 5 includes an association or body of individuals, whether incorporated or not, subject to any law in force about transfers to or by such bodies.

6. Can property be transferred to an unborn child directly? No, because the transferee must be a living person. Section 13 provides the only route: an interest is first created in favour of a living person, and the interest for the unborn person follows it, on the conditions that section imposes.

(i) Nothing in this section is to be deemed to authorise a tenant having an untransferable right of occupancy, the farmer of an estate in respect of which default has been made in paying revenue, or the lessee of an estate under the management of a Court of Wards, to assign his interest as such tenant, farmer or lessee.

Clause by clause

(a) Spes successionis

Spes successionis means a hope of succeeding. It is Latin for exactly that: spes is hope, successio is succession.

The clause covers three things: the chance of an heir-apparent succeeding to an estate; the chance of a relation obtaining a legacy on the death of a kinsman; and any other mere possibility of a like nature.

The reason is that these are not interests at all. While a man is alive, nobody is his heir; there are only people who would inherit if he died today and if the law and his will stayed as they are. He may spend the property, sell it, or leave it elsewhere. What the hopeful relative has is not a small interest but no interest, and there is nothing to convey. A transfer of spes successionis is therefore void, not merely voidable, and it cannot be validated by the parties agreeing to it.

Contrast a contingent interest under section 21, taught in [Vested Interest and Contingent Interest]. A contingent interest is a real, present, transferable interest that happens to depend on an uncertain event. Spes successionis is not an interest at all. That is the distinction the examiner is testing when the two appear in the same question.

The clause has an important partner in section 43. Where a transferor falsely represents that he is already entitled and the transferee takes for consideration on the faith of it, and the transferor later acquires the very interest, section 43 lets the transferee take it.

The Jumma Masjid, Mercara v. Kodimaniandra Deviah, AIR 1962 SC 847, decided on 11 January 1962 by Venkatarama Aiyyar, Kapur, Hidayatullah and Shah JJ, settles how the two live together.

Facts. Three brothers, Santhappa, Nanjundappa and Basappa, were members of a joint family. Nanjundappa died in 1907 leaving his widow Ammakka, who took the estate as heir; on her death in 1910 the property passed to the reversioners. On 18 November 1920 three men who were grandsons of Nanjundappa's sister sold the disputed properties to Ganapathi for Rs. 2,000, the deed representing that they had become entitled as reversioners on Ammakka's death. In truth, at the date of the sale, what they had was a spes successionis. Ganapathi's successor sued for possession, and the Jumma Masjid claimed the same property through a gift said to have been made in 1932 and a release deed of March 1933.

Held. The transferee was entitled to the benefit of section 43. Where a person transfers property representing that he has a present interest in it when in fact he has only a spes successionis, a transferee who took on the faith of that representation and for consideration may claim under section 43 once the transferor acquires the interest. On the apparent conflict, the Court held that section 6(a) enacts a rule of substantive law while section 43 enacts a rule of estoppel, which is a rule of evidence, and that the two operate in different fields and on different conditions, so there is no ground for reading a conflict between them.

Why it matters here. It tells a student what clause (a) actually forbids. It forbids a transfer where both sides know they are dealing in a mere chance. It does not rescue a transferor who lied about having the interest and then acquired it.

(b) A mere right of re-entry

A right of re-entry is the right kept by a transferor to take the property back if a condition is broken, most commonly a lessor's right to re-enter on breach of a covenant. The clause allows it to be transferred to the owner of the property affected, and to nobody else.

The reason is that the right is worth nothing except to the person who owns the land it burdens. In a stranger's hands it would be a weapon for extracting money rather than a proprietary right. Note the word mere: a lessor who transfers the whole reversion transfers the right of re-entry along with it, because it passes as an incident of the reversion and not on its own.

(c) An easement apart from the dominant heritage

An easement is a right one landowner has over the land of another, such as a right of way or a right to light. The land that enjoys the right is the dominant heritage; the land that bears it is the servient heritage. Easements are the subject of Module III and are taught from [What an Easement Is].

An easement exists for the benefit of the dominant land, so it cannot be split off and sold by itself. Sell the dominant land and the easement goes with it; try to sell the easement alone and there is nothing coherent to sell.

(d) An interest restricted in its enjoyment to the owner personally

Where the very terms on which a person holds an interest confine its enjoyment to him, he cannot transfer it. A right of residence given to a particular person, a service tenure attached to an office, and the emoluments of a religious office are the standard instances. The test is whether the restriction is part of the interest itself rather than an ordinary condition imposed on a normal interest, which would be tested under section 10 instead, taught in [Conditions Restraining Alienation, and Restrictions Repugnant to the Interest Created].

(dd) A right to future maintenance

Inserted in 1929, this clause makes a right to future maintenance untransferable "in whatsoever manner arising, secured or determined", which is as wide as the drafter could make it. It does not matter whether the right arises under personal law, a decree, an award or an agreement, or whether it has been secured on property.

The reason is protective. Maintenance exists so that a dependent person can live. If it could be sold or attached, the dependant could be pressed into parting with it and left destitute, which would defeat the entire purpose. Note carefully that only future maintenance is protected: arrears already due are a debt like any other and may be transferred.

(e) A mere right to sue

A bare right to sue cannot be transferred. The word mere is the whole clause. The objection is to trafficking in litigation: allowing a stranger to buy someone else's grievance and pursue it for profit.

The line to draw is between a bare right of action and a right that has become property.

• A claim for damages for defamation, for assault, or for breach of contract where the damages are unliquidated, is a mere right to sue. Not transferable.
• An actionable claim, meaning an unsecured debt or a beneficial interest in movable property not in the claimant's possession, as defined in section 3, is transferable, under sections 130 to 137, taught in [Actionable Claims].
• A decree already obtained is property and may be transferred, because the right has crystallised into a judgment debt.
• Arrears of rent or of maintenance already accrued are debts, and transferable.

So the question to ask is whether what is being sold is a fight or a fund.

(f) A public office and the salary of a public officer

Neither the office nor the salary can be transferred, and the clause is deliberate in adding "whether before or after it has become payable", so even salary already earned is caught. Public offices are held for the public, not for the holder's profit, and a public servant who could sell his salary could be pressed by creditors into neglecting his duties.

(g) Pensions

Stipends allowed to military, naval, air-force and civil pensioners of Government, and political pensions, cannot be transferred. The reason is the same protective one as maintenance: the pension exists to keep the pensioner. Once a pension instalment has actually been paid and is money in the pensioner's hands, it is ordinary property and the clause has spent itself.

(h) Three general prohibitions

This clause is a catch-all with three limbs.

(1) Opposed to the nature of the interest affected. Some things are not capable of private ownership at all and so cannot be transferred: the air, running water in a natural stream, light, a public road, a public river. Res extra commercium, a thing outside commerce, is the label.

(2) For an unlawful object or consideration within the meaning of section 23 of the Indian Contract Act 1872. This is the same test the Contract Act applies, brought in by section 4 of this Act. An object or consideration is unlawful if it is forbidden by law, defeats the provisions of any law, is fraudulent, involves injury to the person or property of another, or is immoral or opposed to public policy.

(3) To a person legally disqualified to be transferee. Certain people are barred by other laws from buying certain property. The standard illustration is section 136 of this Act, which disqualifies a Judge, a legal practitioner or an officer connected with a Court of Justice from buying an actionable claim; it is taught in [Actionable Claims].

(i) Untransferable occupancy tenants and others

The clause makes clear that nothing in section 6 authorises three classes to assign their interest as such: a tenant having an untransferable right of occupancy; the farmer of an estate in respect of which default has been made in paying revenue; and the lessee of an estate under the management of a Court of Wards.

These are statutory tenancies given to particular people for particular reasons, usually protective land legislation, and letting them be sold would put the land straight back into the hands the legislation was keeping it from.

A worked example

Deepak, a clerk in a municipal office, is short of money. In one afternoon he agrees to five things with a moneylender, Harish.

One, he assigns his salary for the next six months. Void under clause (f): the salary of a public officer cannot be transferred, before or after it becomes payable.

Two, he assigns his claim for damages against a neighbour who broke his arm. Void under clause (e): unliquidated damages for a personal injury are a mere right to sue.

Three, he assigns Rs. 40,000 that a former employer admits is owed to him as unpaid wages and has not paid. Valid. This is an unsecured debt and therefore an actionable claim under section 3, transferable under section 130.

Four, he assigns whatever he will inherit from his uncle Krishnan, who is alive and ill. Void under clause (a): a mere chance of an heir-apparent succeeding, and Krishnan may recover, spend the property or leave it elsewhere.

Five, he assigns his right to receive maintenance from his father under a decree. Void under clause (dd): a right to future maintenance, however arising, secured or determined. Arrears already due under that decree would have been a different matter.

Two of the five hold. The pattern is worth noticing: what Deepak could transfer were the two accrued money claims, and what he could not were the expectancy, the fight and the protected right.

What it does NOT mean

It does not mean these transfers are voidable. A transfer hit by section 6 is void. There is nothing for the parties to affirm.

Clause (a) does not make section 43 useless. The two operate in different fields, as the Supreme Court held in the case above. Clause (a) is substantive law about what can be transferred; section 43 is a rule of estoppel about a transferor who misrepresented his position and then acquired the interest.

Clause (e) does not bar the transfer of every claim. It bars a mere right to sue. Actionable claims, decrees and accrued arrears are all transferable.

Clause (dd) does not protect arrears. Only future maintenance is untransferable. Maintenance already due is a debt.

Clause (g) does not follow the money forever. Once the pension has been paid to the pensioner it is ordinary property in his hands.

"Mere" is doing real work in clauses (b) and (e). A right of re-entry passes with the reversion, and a right to sue that has hardened into a debt or a decree is transferable.

Distinctions

Quick revision

• The rule is transferability; section 6's clauses are the exceptions, and a transfer within them is void.
• (a) Spes successionis: the chance of an heir-apparent, of a legatee, or any like possibility. Not an interest at all. Compare a contingent interest, which is.
• (b) A mere right of re-entry, transferable only to the owner of the affected property; it passes with the reversion.
• (c) An easement, only with the dominant heritage.
• (d) An interest restricted in its enjoyment to the owner personally.
• (dd) A right to future maintenance, however arising, secured or determined. Arrears are transferable.
• (e) A mere right to sue. Actionable claims, decrees and arrears are outside it.
• (f) A public office, and the salary of a public officer, before or after it is payable.
• (g) Government and political pensions, until paid.
• (h) Opposed to the nature of the interest; unlawful object or consideration under section 23 of the Contract Act 1872; a transferee legally disqualified.
• (i) Untransferable occupancy tenants, defaulting revenue farmers, Court of Wards lessees.
• Section 43 rescues a transferee who was misled into buying a spes successionis and the transferor later acquires it.

Test yourself

1. Sunil, whose mother is alive and owns a house, sells "his share in his mother's house" to Rakesh. Is the sale good? No. Sunil has only the chance of succeeding to his mother's estate, a spes successionis, and clause (a) makes such a transfer void. Nobody is an heir while the owner lives.

2. If Sunil had represented to Rakesh that his mother had already died and that the house was his, and the mother later died leaving it to Sunil, could Rakesh claim it? Yes, on the principle in The Jumma Masjid, Mercara v. Kodimaniandra Deviah, AIR 1962 SC 847. Section 43 lets a transferee who paid consideration on the faith of a false representation take the interest when the transferor acquires it, because section 6(a) is a rule of substantive law and section 43 a rule of estoppel operating in a different field.

3. Can a decree for money be transferred? Yes. It is no longer a mere right to sue but a judgment debt, and so property. Clause (e) does not touch it.

4. A wife has a decree for maintenance of Rs. 8,000 a month. She wishes to assign the next two years' maintenance and also the Rs. 50,000 already in arrears. What is the position? The future maintenance cannot be assigned: clause (dd) covers a right to future maintenance in whatsoever manner arising, secured or determined, and a decree is within that. The Rs. 50,000 arrears are a debt already accrued and can be assigned.

5. Why can a public officer not assign salary already earned? Because clause (f) says so in terms: neither the office nor the salary can be transferred, "whether before or after it has become payable". The bar is not about whether the money has been earned.

6. Give an example under limb (1) of clause (h). Air, running water in a natural stream, light, or a public road. These are not capable of private ownership, so a transfer of them is opposed to the nature of the interest.

7. Can a right of way be sold to a neighbour who owns no adjoining land? No. Clause (c) forbids the transfer of an easement apart from the dominant heritage. The right exists for the benefit of the dominant land and cannot be detached from it.

Two, entitled to the transferable property. The transferor must have title, and the property must be transferable, which sends the reader back to section 6. A person cannot give a better title than he has. Where he has a limited interest, for example a life interest, he can transfer only that, and it ends when his interest ends.

Three, or authorised to dispose of transferable property not his own. This is the alternative limb and it is what makes agents, guardians, trustees, executors, receivers and attorneys able to convey. The authority must be real and must extend to the transaction: a power of attorney to manage land does not by itself authorise a sale of it.

And in the manner allowed by law. The closing words subject everything to any other law in force. A guardian selling a minor's immovable property needs the permission of the court under section 8 of the Hindu Minority and Guardianship Act 1956; a trustee is bound by the trust deed and the Indian Trusts Act 1882; a company acts through its board under the Companies Act 2013.

A worked example

Consider four proposed sales of a flat at Mulund.

One. Nikhil, aged seventeen, sells the flat he inherited. He is not competent to contract under section 11 of the Contract Act 1872, so he is not competent to transfer under section 7. The sale is void, and no lapse of time and no ratification on turning eighteen will cure it, because there was never a contract to ratify.

Two. Nikhil's mother, as his natural guardian, sells the same flat without applying to the court. She is a person authorised to dispose of property not her own, so she satisfies the third limb of section 7. But the closing words require the manner allowed by law, and section 8 of the Hindu Minority and Guardianship Act 1956 requires the previous permission of the court for a sale of a minor's immovable property. Without it the sale is voidable at the minor's instance.

Three. Prakash, who holds the flat for his lifetime under his father's will with a remainder to his sister, sells it outright. He is competent to contract and entitled to property, but only to a life interest. He passes what he has: the buyer takes an interest that ends on Prakash's death, and the sister takes thereafter.

Four. Prakash's attorney, holding a power of attorney "to let, manage and collect rents", executes a sale deed. He is not authorised to dispose of the property, only to manage it, so the third limb is not satisfied and the deed conveys nothing.

What it does NOT mean

It does not require the transferee to be competent. A minor can receive property. Section 7 speaks only of who may transfer.

It does not mean an owner can always transfer. Section 6 may make the property untransferable, other laws may disqualify him, and the closing words subject him to the manner prescribed by law.

A transfer by a minor is void, not voidable. This follows from a minor's agreement being void under the Contract Act, and it is why ratification on majority does not help. A fresh transfer after majority would be needed.

Unsoundness of mind is not a permanent status for this purpose. It is tested at the moment of the transfer, by section 12 of the Contract Act.

Authority is not general. An agent conveys only what his authority covers.

Distinctions

Quick revision

• Section 7 has three requirements: competent to contract; entitled to transferable property, or authorised to dispose of property not his own; and acting in the manner allowed by law.
• Competence comes from sections 11 and 12 of the Contract Act 1872 through section 4 of this Act: majority, sound mind, not disqualified.
• Majority is eighteen, or twenty-one where a court has appointed a guardian under the Guardians and Wards Act 1890.
• A transfer by a minor is void and cannot be ratified. A minor may be a transferee.
• Sound mind is judged at the time of the transfer; a lucid interval will do.
• The third limb covers guardians, agents, trustees, executors and receivers, and the authority must cover the transaction.
• A transferor passes only what he has; a life tenant passes a life interest.
• The closing words import other statutes, for example section 8 of the Hindu Minority and Guardianship Act 1956.

Test yourself

1. State the three requirements of section 7. Competence to contract; entitlement to the transferable property, or authority to dispose of transferable property that is not his own; and that the transfer is made in the circumstances, to the extent and in the manner allowed and prescribed by law for the time being in force.

2. Can a minor be a transferee? Yes. Section 7 governs only who may transfer. A minor may take a gift, be a mortgagee, or buy through a lawful guardian.

3. A man who is usually of unsound mind sells his land during a period when he understands perfectly what he is doing. Good or bad? Good. Section 12 of the Contract Act 1872 makes soundness of mind a question at the time the contract is made, so a transfer in a lucid interval is valid.

4. A holds a life interest and sells the property absolutely. What does the buyer get? A life interest measured by A's life. Nobody can transfer more than he has, and on A's death the property goes to whoever holds the remainder.

5. Does an agent with a power of attorney to manage property have power to sell it? No, unless the power says so. The third limb of section 7 requires authority to dispose of the property, and a power to manage is not that.

6. Why can a minor's void transfer not be ratified on his attaining majority? Because a minor's agreement is void from the start, so there is no transaction in existence for the major to adopt. A fresh transfer is required.

The exception in the debt limb repays a second reading. If the same security secures two debts and only one is assigned, the security does not pass, because it cannot be split between the assignee and the assignor without prejudicing one of them.

Section 9: oral transfers

Section 9 provides that a transfer of property may be made without writing in every case in which a writing is not expressly required by law.

The rule is therefore permissive with a large exception, and the exception is what a student must know, because most of the transfers in this syllabus are inside it. Writing, and usually registration, is expressly required by:

• Section 54, for a sale of tangible immovable property of the value of one hundred rupees and upwards, and for a sale of a reversion or other intangible thing: only by a registered instrument.
• Section 59, for a mortgage other than a mortgage by deposit of title-deeds, where the principal money secured is one hundred rupees or more: by a registered instrument signed by the mortgagor and attested by at least two witnesses.
• Section 107, for a lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent: only by a registered instrument.
• Section 123, for a gift of immovable property: by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses.

Those are the same four provisions section 4 declares supplemental to the Registration Act 1908, and the same four the exemption power in section 1 singles out. They are the hinge between Module I and Module IV.

What is left for section 9 is real but narrower than beginners expect: a sale of tangible immovable property worth less than one hundred rupees, which may be made by delivery; a mortgage by deposit of title-deeds under section 58(f), which needs no writing at all; a lease from month to month or for a year or less; a surrender of a lease; and transfers of movable property generally.

A worked example

Latika sells her house at Bhandup to Manoj by a registered deed for Rs. 60 lakh. The deed describes the house and the plot and says nothing else. On the date of the transfer these facts are true: a tenant owes Rs. 30,000 rent for the three months before the sale and will owe rent afterwards; the house has a registered right of way over the neighbouring plot; the front door has an expensive brass lock; there is a window air conditioner; and Latika has a fixed deposit in a bank.

Apply section 8.

The right of way is an easement annexed to the house and passes to Manoj.

The rent accruing after the transfer passes to Manoj. The Rs. 30,000 of arrears does not: section 8 passes rent accruing after the transfer, so the arrears remain Latika's and she can sue for them.

The lock, and the keys, bars, doors and windows, pass by name. They are listed in the section.

The air conditioner does not pass under section 8. It is not attached to the earth and it is not a thing provided for permanent use with the house, as discussed in chapter 10; it is movable property that must be sold separately if the parties want it to go.

The fixed deposit obviously does not pass. It is not the property transferred, and section 8 passes the incidents of the property sold, not the transferor's other assets.

Now change one fact. Suppose the deed had said "the seller reserves the brass lock on the front door". That is a different intention expressed, and section 8 yields to it. The lock stays with Latika.

What it does NOT mean

It does not enlarge what the transferor has. The words are "all the interest which the transferor is then capable of passing". Section 8 distributes; it does not create.

It does not override the deed. A different intention expressed or necessarily implied displaces it. The parties are always free to carve incidents out.

It does not pass arrears. This is the commonest slip. Rent, profits, interest and income that accrued before the transfer stay with the transferor, and the section says so about arrears of interest in terms.

Section 9 does not mean most transfers can be oral. For sale, mortgage, lease over a year, and gift of immovable property, writing and registration are expressly required, so section 9 is displaced.

Section 9 does not dispense with registration where the Registration Act requires it. Section 9 speaks of writing. Even where this Act does not demand a registered instrument, section 17 of the Registration Act 1908 may, and that is Module IV.

Distinctions

Quick revision

• Section 8 passes all the interest the transferor is then capable of passing, plus the legal incidents, unless a different intention is expressed or necessarily implied.
• Five listed classes: land; machinery attached to the earth; a house; a debt or actionable claim; money or income-yielding property.
• The dividing line everywhere is the date of transfer: what accrues after passes, what accrued before does not.
• Securities for an assigned debt pass, except where they also secure debts that were not assigned; arrears of interest never pass.
• Section 9 allows an oral transfer wherever writing is not expressly required.
• Writing and registration are expressly required by sections 54, 59, 107 and 123, the four provisions section 4 makes supplemental to the Registration Act 1908.
• Real cases for section 9: a sale under Rs. 100, a mortgage by deposit of title-deeds, a short lease, a surrender, and movables.

Test yourself

1. A house is sold on 1 August. The tenant owes two months' rent for June and July and pays it in September. Who is entitled to it? The seller. Section 8 passes the rent of a house accruing after the transfer. June and July rent accrued before 1 August, so it remains the transferor's and does not pass with the house.

2. Name four things that pass with a house under section 8. The easements annexed to it, the rent accruing after the transfer, and the locks, keys, bars, doors and windows, together with all other things provided for permanent use with the house.

3. A debt of Rs. 5 lakh and another of Rs. 3 lakh are secured by the same pledge. Only the Rs. 5 lakh debt is assigned. Does the security pass? No. Section 8 passes the securities for a debt except where they are also security for other debts or claims not transferred to the transferee. Here the pledge also secures the Rs. 3 lakh debt, which stays behind, so it does not pass.

4. Can a mortgage by deposit of title-deeds be created orally? Yes. Section 9 permits an oral transfer wherever writing is not expressly required, and section 59 excepts a mortgage by deposit of title-deeds from the requirement of a registered and attested instrument.

5. Can a gift of a flat be made orally? No. Section 123 expressly requires a registered instrument signed by or on behalf of the donor and attested by at least two witnesses, so section 9 has no application.

6. Does section 8 pass property the transferor does not own? No. It passes only the interest the transferor is then capable of passing, which keeps it consistent with section 7.

Absolute against partial restraint

This is the distinction the whole section turns on, and section 10 does not define it. Only an absolute restraint is void. A partial restraint, one that limits but does not effectively destroy the power of disposal, is valid.

The working test is whether the condition leaves the transferee a substantial power to alienate. Ask whether there is a real market left.

Restraints treated as absolute, and so void:

• A condition that the transferee shall never sell the property at all.
• A condition that he may sell only to a named person, or only to one of two named persons. The transferee is at that person's mercy on price, so the power is nominal.
• A condition that he may sell only for a fixed price far below the market, which achieves the same result by another route.
• A condition postponing alienation for an unreasonably long period, for example a lifetime.

Restraints treated as partial, and so valid:

• A condition that the property shall not be sold outside the family. The class of permitted buyers is limited but genuine, and the transferee still has a market.
• A condition restraining alienation for a short and reasonable period.
• A condition giving the transferor or his family a right of pre-emption, that is a right of first refusal at a fair price. The transferee may still sell; he must simply offer it first.

Notice how those two lists differ. A restraint that narrows the field of buyers is usually partial. A restraint that leaves the transferee with one buyer, or none, or a price nobody would accept, is absolute in substance whatever it says on its face.

Section 11: a direction as to enjoyment

Section 11 provides that where, on a transfer of property, an interest is created absolutely in favour of any person, but the terms of the transfer direct that the interest shall be applied or enjoyed by him in a particular manner, he is entitled to receive and dispose of the interest as if there were no such direction.

Section 10 strikes at restraints on transfer; section 11 strikes at directions about enjoyment. The principle is identical. An absolute interest carries the right to use the property as the owner pleases, and a direction telling him how to use it contradicts the absolute interest already given.

The words "created absolutely" are the gateway. If the interest given is not absolute, section 11 has nothing to bite on. A transferor who gives a life interest, or an interest for a limited purpose, has given a smaller thing, and its limits are part of what was given rather than a direction added to something larger.

The second paragraph, and why it matters

The paragraph substituted in 1929 provides that where such a direction has been made in respect of one piece of immoveable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in the section affects any right the transferor may have to enforce the direction, or any remedy for its breach.

This is the exception that connects section 11 to section 40. A transferor who sells one plot and keeps the neighbouring plot may validly direct that the plot sold shall not be built on above a certain height, or shall be used only as a garden, if the direction is for the beneficial enjoyment of the plot he kept. That is not a busybody controlling another man's property; it is a landowner protecting his own. The enforcement of such covenants is the subject of [Restrictive Covenants: When an Obligation Runs with the Land].

Section 12: conditions determining an interest on insolvency or attempted alienation

Section 12 provides that where property is transferred subject to a condition or limitation making any interest in it, reserved or given to or for the benefit of any person, to cease on his becoming insolvent or endeavouring to transfer or dispose of the same, the condition or limitation is void. Nothing in the section applies to a condition in a lease for the benefit of the lessor or those claiming under him.

This section closes a loophole. Sections 10 and 11 attack a direct prohibition. A clever drafter might avoid them by saying instead: "the interest shall determine if he tries to sell". That is a restraint on alienation dressed as a defeasance clause, and section 12 makes it void as well.

The reference to insolvency attacks the same trick from the creditors' side. If an interest could be made to vanish the moment its holder became insolvent, his creditors would find nothing to attach, and the transferee would enjoy property that was beyond the reach of the people he owed. Section 12 refuses that.

The lease exception is the same as in section 10 and rests on the same reason: the lessor keeps a reversion and has a legitimate interest in his tenant.

An important limit: section 12 strikes at a condition making the interest cease on the holder's own insolvency or attempted alienation. It does not touch a condition making an interest cease on some other event, which is an ordinary conditional limitation governed by sections 25 to 34 and taught in [Conditional Transfers: Conditions Precedent and Subsequent].

A worked example

Ravindra transfers his flat at Andheri absolutely to his nephew Sameer by a registered gift deed. The deed contains four clauses.

Clause 1: "Sameer shall never sell or mortgage the flat." An absolute restraint on alienation. Void under section 10. Sameer takes the flat and may sell or mortgage it freely.

Clause 2: "Sameer shall not sell the flat to anyone outside the family." A partial restraint. The class of buyers is narrowed but Sameer retains a real power of disposal within a genuine class. Valid.

Clause 3: "Sameer shall use the flat only as his residence and shall not let it out." A direction as to the manner of enjoyment of an interest created absolutely. Void under section 11, and Sameer may let the flat. It would be different if Ravindra owned the flat next door and the direction had been imposed to protect the enjoyment of that flat, because the second paragraph of section 11 would then apply.

Clause 4: "If Sameer becomes insolvent, or attempts to sell the flat, the flat shall revert to Ravindra." Void under section 12, on both limbs. The interest does not cease, and the flat remains available to Sameer's creditors.

Ravindra therefore achieves exactly one of the four things he wanted. Had he wished to retain real control, the answer was to transfer a life interest to Sameer with a remainder over, rather than an absolute interest with strings.

What it does NOT mean

It does not mean the transfer fails. Only the offending condition is void. This is the single most common error on this topic. The transferee takes the property freed of the condition.

It does not make every restraint void. Only absolute restraints under section 10. Partial restraints, including a right of pre-emption and a bar on selling outside the family, are valid.

Section 11 does not apply to a limited interest. It requires an interest created absolutely. A life interest is a smaller grant, not an absolute grant with a direction attached.

The lease exception is not general. In both sections 10 and 12 it applies only where the condition is for the benefit of the lessor or those claiming under him.

Section 12 does not invalidate every determinable interest. It strikes only at conditions keyed to the holder's insolvency or his attempt to alienate.

Distinctions

Quick revision

• Section 10: an absolute restraint on alienation is void; a partial one is valid.
• The transfer survives; only the condition dies.
• Two exceptions to section 10: a lease condition for the lessor's benefit, and the proviso for a married woman not being a Hindu, Muhammadan or Buddhist.
• Test for absoluteness: is a substantial power of alienation left?
• Sell only to a named person: absolute, void. Do not sell outside the family: partial, valid. Right of pre-emption at a fair price: valid.
• Section 11: a direction as to the manner of enjoyment of an interest created absolutely is disregarded.
• Second paragraph of section 11: a direction protecting the beneficial enjoyment of the transferor's other immovable property is enforceable, and links to section 40.
• Section 12: a condition making an interest cease on insolvency or attempted alienation is void, save in a lease for the lessor's benefit.

Test yourself

1. A gifts land to B on condition that B shall never sell it. What is the position of the land and of the condition? The condition is an absolute restraint on alienation and is void under section 10. The gift itself stands, so B takes the land absolutely and may sell it.

2. Is a condition that the transferee shall not sell outside the family valid? Yes. It is a partial restraint. The class of buyers is limited but the transferee keeps a substantial power of disposal within a real class.

3. Why is a condition permitting sale only to one named person treated as absolute? Because the transferee is left with a single possible buyer who can dictate the price. The power of alienation is nominal rather than substantial, so the restraint is absolute in substance.

4. A transfers a shop absolutely to B, directing that the rent shall be used to maintain a temple. Can B use the rent as he likes? Yes. The interest was created absolutely and the direction concerns the manner of enjoyment, so section 11 entitles B to receive and dispose of the interest as if there were no such direction.

5. When can a direction as to enjoyment be enforced? Under the second paragraph of section 11, where the direction is made in respect of one piece of immovable property for the purpose of securing the beneficial enjoyment of another piece of such property. The transferor's rights and remedies in respect of a breach are then unaffected.

6. A settles property on B with a clause that B's interest shall end if he is declared insolvent. Is the clause good? No. Section 12 makes void a condition making an interest cease on the holder becoming insolvent. The clause fails and the interest remains available to B's creditors.

7. Why is a covenant against subletting in a lease valid when a similar restraint in a sale is not? Because both sections 10 and 12 except a condition in a lease which is for the benefit of the lessor or those claiming under him. A lessor retains a reversion and so keeps a genuine interest in who holds and occupies the property.

The illustration to section 13

The Act supplies its own illustration, and it repays close reading:

A transfers property of which he is the owner to B in trust for A and his intended wife successively for their lives, and, after the death of the survivor for the eldest son of the intended marriage for life, and after his death for A's second son. The interest so created for the benefit of the eldest son does not take effect, because it does not extend to the whole of A's remaining interest in the property.

Work through why. A and his intended wife are living persons and take life interests, so the first requirement is met. The eldest son of the intended marriage is unborn at the date of the transfer. He is given a life interest, with a gift over to A's second son afterwards. Because something is given after him, his interest does not extend to the whole of A's remaining interest, and the second requirement fails. His interest does not take effect.

Notice that the illustration turns on the words "for life" and on the gift over. Delete both, and give the eldest son absolutely, and the transfer is good.

Section 20: when the unborn person's interest vests

Section 20 provides that where, on a transfer of property, an interest is created for the benefit of a person not then living, he acquires upon his birth, unless a contrary intention appears from the terms of the transfer, a vested interest, although he may not be entitled to the enjoyment of it immediately on his birth.

Three things follow.

The interest vests at birth, not at the end of the prior interest. The moment the child is born, the interest is his.

Vesting is separate from enjoyment. He owns it while the life tenant is still alive and still in possession. He simply cannot enjoy it yet. This is the distinction between an interest vested in interest and one vested in possession, developed in [Vested Interest and Contingent Interest].

The consequence is practical. Because the interest is vested at birth, it is transferable and heritable at once. If the child is born and then dies while the life tenant is still living, the interest does not disappear: it passes to the child's own heirs, and they take when the life interest ends.

A contrary intention in the terms of the transfer can displace this, and where the gift is made to depend on a condition, the interest is contingent instead.

A worked example

Yashwant owns a building at Dadar. He executes one deed containing the following gifts.

Version one. To his son Ketan for life, and after Ketan's death to Ketan's first child absolutely.

Ketan is alive, so there is a prior interest created by the same transfer. Ketan's first child is unborn. That child is given the whole of Yashwant's remaining interest, because the gift is absolute and nothing follows it. Both requirements of section 13 are satisfied and the gift is good. When the child is born, section 20 gives it a vested interest at once, though it cannot enjoy the building until Ketan dies.

Version two. To Ketan for life, then to Ketan's first child for life, then to Ketan's second child absolutely.

The first child is unborn and is given only a life interest, with a gift over after it. His interest does not extend to the whole of Yashwant's remaining interest, so it fails under section 13. And the second child's interest, created in the same transaction and intended to take effect on the failure of the first, also fails, this time under section 16, taught in the next chapter.

Version three. To Ketan for life, then to Ketan's first child absolutely, but if that child becomes a doctor, then to Ketan's second child.

The first child's interest is absolute on its face, but it is liable to be defeated. The gift over means the transferor has not parted with the whole of the remaining interest to the first child, and the interest fails.

Version four. Yashwant conveys the building to Ketan absolutely today by one deed, and by a separate deed executed the same afternoon purports to give it to Ketan's unborn child after Ketan's death.

This fails on the first requirement, not the second. Section 13 requires the prior interest to be created by the same transfer. Two deeds are two transfers, and in any event Yashwant had nothing left after the first.

Now suppose version one operates, the child is born, and dies aged two while Ketan is alive. The interest vested at birth under section 20. It is not extinguished by the child's death; it passes to the child's heirs, who will take possession when Ketan dies.

What it does NOT mean

It does not mean an unborn person can never benefit. He can, through the machinery of section 13.

It does not mean the child must be conceived at the date of the transfer. Section 13 speaks of a person "not in existence at the date of the transfer", and the machinery works for a child not yet conceived.

It does not mean the unborn person must be born before the prior interest ends. That is a real requirement, but it comes from section 14 and from the general rule that the property must vest in somebody. Section 13 itself is about the size of the interest given.

A life interest to an unborn person is void, not merely reduced. The court will not read it as an absolute interest to save it. The interest simply does not take effect.

Vested does not mean enjoyed. Section 20 says so in terms: he acquires a vested interest although he may not be entitled to enjoyment immediately on his birth.

Section 13 does not apply where there is no prior interest. If a transferor purports to give property directly to an unborn person with nobody taking first, the transfer fails under section 5 for want of a living transferee.

Distinctions

Quick revision

• An unborn person cannot be a direct transferee, because section 5 requires a living person.
• Section 13 machinery: a prior interest in favour of a living person, created by the same transfer, and the unborn person must take the whole of the transferor's remaining interest.
• A life interest to an unborn person is void. So is an absolute interest followed by a gift over.
• The Act's own illustration fails on exactly that point: the eldest son of the intended marriage takes for life with a gift over to A's second son.
• Section 20: the unborn person acquires a vested interest on birth, unless a contrary intention appears, though enjoyment may come later.
• Because it vests at birth, the interest is transferable and heritable, and survives the child's early death.
• Sections 13 and 14 work as a pair; the consequences of failure are sections 15 and 16.

Test yourself

1. Why can property not be transferred directly to an unborn person? Because section 5 defines a transfer as a conveyance by a living person to a living person, and an unborn person is not a living person. There is nobody in whom the interest could vest.

2. State the two requirements of section 13. There must be a prior interest in favour of a living person created by the same transfer; and the interest given to the unborn person must extend to the whole of the remaining interest of the transferor.

3. A transfers to B for life, then to B's unborn son for life, then to C absolutely. What happens to the unborn son's interest? It fails. The unborn son is given only a life interest, which does not extend to the whole of A's remaining interest, so section 13 is not satisfied.

4. When does an unborn person's interest vest? On his birth, under section 20, unless a contrary intention appears from the terms of the transfer. He need not be entitled to enjoyment at that moment.

5. A transfers to B for life, then to B's unborn child absolutely. The child is born and dies at the age of three, B still being alive. Who takes on B's death? The child's heirs. The interest vested in the child at birth under section 20, and a vested interest is heritable, so the child's death before enjoyment does not destroy it.

6. Can the prior interest be created by a different document executed on the same day? No. Section 13 requires the prior interest to be created by the same transfer, so both interests must arise out of one transaction.

Two points of accuracy that carry marks.

First, the Indian rule uses the actual minority of the person, not a flat period. English law allows a gross period of twenty-one years whether or not there is a minor. Under section 14 the extension is the real minority of a real person, so if that person is already fourteen when the last life ends, only four years are added, and if the interest is given to a person already of full age, no extension is available at all.

Second, the period of gestation is allowed for at the front. A child in the womb at the relevant date is treated as being in existence, which is why the standard statement of the rule adds "plus the period of gestation" where a child is en ventre sa mere, a Law French phrase meaning in its mother's womb.

Sections 15 and 16: what happens when a gift fails

These two sections handle the consequences, and they pull in opposite directions.

Section 15: a gift to a class fails only as to those it offends. Where an interest is created for the benefit of a class of persons and it fails as to some of them by reason of section 13 or section 14, the interest fails in regard to those persons only and not in regard to the whole class.

The words in that final phrase were substituted by amendment, and the change is the point: before it, the whole class gift fell. Now the court saves the members whom the rules do not hit and strikes out only those they do.

Section 16: an interest intended to take effect after a failed interest fails too. Where, by reason of section 13 or section 14, an interest created for a person or a whole class fails, any interest created in the same transaction and intended to take effect after or upon the failure of that prior interest also fails.

The reason is that the later gift was drafted on the assumption that the earlier one would run its course. It was meant to begin when the earlier interest ended, and if the earlier interest never existed, the later one has no starting point. Section 16 refuses to let it be pulled forward into a position the transferor never intended.

The interaction with section 15 is where problems get their difficulty. If a class gift fails only in part under section 15, the class gift has not failed as a whole, and a later interest is not destroyed by section 16, because section 16 operates only where the interest fails "in regard to such person or the whole of such class".

Section 18: transfers for the benefit of the public

Section 18 provides that the restrictions in sections 14, 16 and 17 do not apply to a transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety, or any other object beneficial to mankind.

The exemption is deliberate and it is easy to justify in an answer. The mischief behind section 14 is property tied up in a private family and withdrawn from use. A permanent endowment for a hospital, a school, a temple or a public library is the opposite: the property is dedicated to continuing public use, and the longer it lasts the better the object is served. So the policy that condemns a private perpetuity commends a public one.

Note which sections are exempted. Section 14, the rule itself; section 16, the failure of a subsequent interest; and section 17, the limit on accumulation, taught in [Direction for Accumulation]. Section 13 is not in the list.

What the rule does not apply to

The rule strikes at transfers creating an interest in property. A number of arrangements fall outside it, and they are frequently examined.

Rambaran Prosad v. Ram Mohit Hazra, AIR 1967 SC 744, decided on 6 September 1966 by Ramaswami, Bhargava and Raghubar Dayal JJ, is the authority.

Facts. Two brothers, Tulshidas and Kishorilal Chatterjee, held property in Calcutta. A partition award of 1941 divided the land into four blocks and contained a covenant of pre-emption: before selling to an outsider, each was to offer the property to the other. Tulshidas sold block A in 1941 after Kishorilal declined it. Kishorilal sold blocks B and D in 1942, and those came to the plaintiffs. In 1952 the purchaser of block A sold it on to the first defendant without any offer being made, and the plaintiffs sued to enforce the covenant.

Held. The covenant bound successors and assignees although it did not say so in terms, and the rule against perpetuity did not defeat it. Reading section 14 with section 54, which provides that a contract for the sale of immovable property does not of itself create any interest in or charge on the property, the Court held that the rule against perpetuity applies to interests in property and not to personal contracts, so it cannot be applied to a covenant of pre-emption even where no time limit is fixed for exercising the option.

Why it matters here. It draws the outer edge of section 14 by telling a student what the rule does not touch. A right that is merely contractual, however long it may run, is outside the section, because no interest in property has been created.

Other recognised exceptions, which sit on the same reasoning or on express provision:

• A charge, which secures money rather than creating an interest in the land.
• A personal agreement that creates no interest in property, as in the case above.
• A covenant of redemption in a mortgage, since the mortgagor's right to redeem is not a future interest of the kind the rule attacks.
• A contract of pre-emption.
• A lease, including a covenant for perpetual renewal, because the lessee's interest is present rather than future.
• A transfer for the benefit of the public within section 18.

A worked example

Chandrakant, who owns a bungalow at Nashik, executes a settlement in 2026. At that date his son Deven is alive and aged forty; Deven has no children.

Version one. To Deven for life, then to Deven's first son on his attaining the age of eighteen.

Deven is a life in being. His first son will be a person in existence at the end of that life, if born. Vesting is postponed until that son attains eighteen, which is exactly his minority. The gift is within the maximum permitted by section 14 and is good.

Version two. To Deven for life, then to Deven's first son on his attaining the age of twenty-five.

Deven is a life in being. But vesting is now postponed beyond the son's minority by seven years. Section 14 permits the lives in being plus the minority of the ultimate beneficiary, not minority plus a margin. The gift is void.

Version three. To Deven for life, then to Deven's first son for life, then to Deven's first grandson absolutely.

Two failures, and it is worth separating them. The gift to Deven's first son, an unborn person, is a life interest, which fails under section 13 as taught in the previous chapter. The gift to the grandson is created in the same transaction and is intended to take effect after that failed interest, so it fails under section 16.

Version four. To Deven for life, then to such of Deven's children as attain the age of twenty-five.

This is a class gift. As to any child who is alive at Deven's death and under twenty-five, vesting is postponed beyond his minority and the gift offends section 14. As to a child who has already turned twenty-five, the interest vests at once on Deven's death and there is no offence. Section 15 saves the second group and strikes out only the first.

Version five. To trustees on trust to maintain a free dispensary in the village, for ever.

Section 18 exempts it. The transfer is for the benefit of the public in the advancement of health, so sections 14, 16 and 17 do not apply, and the endowment may last indefinitely.

What it does NOT mean

It does not forbid postponing enjoyment. The rule is about postponing vesting. An interest may vest at once and be enjoyed much later, as with the unborn child in section 20 whose interest vests at birth.

It does not allow a flat twenty-one years. That is the English rule. Section 14 allows the actual minority of the ultimate beneficiary.

The minority used must be that of the ultimate beneficiary. Section 14 requires that the interest, if he attains full age, is to belong to him. Borrowing the minority of some other child does not work.

A class gift is not wholly destroyed. Section 15 preserves the members the rules do not hit.

Section 18 does not exempt section 13. It names sections 14, 16 and 17 only.

A contract is not caught. As held in the case above, a covenant of pre-emption creates no interest in property, so the rule has nothing to bite on.

Distinctions

Quick revision

• Section 14: vesting may be postponed only for lives in being at the date of the transfer, plus the minority of a person in existence at the end of that period, to whom the interest is to belong on attaining full age.
• Add the period of gestation where a child is in the womb.
• Minority is eighteen, or twenty-one where a court has appointed a guardian.
• The Indian rule uses actual minority, not England's flat twenty-one years.
• Section 15: a class gift fails only as to the members it offends.
• Section 16: an interest meant to take effect after a failed interest also fails, but only where the prior gift failed as to the person or the whole class.
• Section 18 exempts transfers for the public benefit in the advancement of religion, knowledge, commerce, health, safety or any object beneficial to mankind, from sections 14, 16 and 17, but not section 13.
• Outside the rule: charges, personal contracts, covenants of redemption, pre-emption, leases and perpetual renewal covenants.

Test yourself

1. State the maximum period allowed by section 14. The lifetime of one or more persons living at the date of the transfer, plus the minority of a person who is in existence at the expiration of that period and to whom, if he attains full age, the interest is to belong.

2. A transfers to B for life, then to B's first son on attaining twenty-one, no guardian having been appointed by a court. Valid? No. Minority in that case ends at eighteen, so vesting is postponed three years beyond the permitted period and the gift offends section 14.

3. What is the difference between the Indian and the English rule? Section 14 allows the actual minority of the ultimate beneficiary after the lives in being, so the extension varies with the person's age and may be nothing at all. English law allows a fixed period of twenty-one years regardless of whether any minor exists.

4. Does the rule apply to a covenant of pre-emption without a time limit? No. In Rambaran Prosad v. Ram Mohit Hazra, AIR 1967 SC 744, the Supreme Court held that reading section 14 with section 54, the rule applies to interests in property and not to personal contracts, so a covenant of pre-emption is outside it even with no time limit.

5. A gift is made to such of X's children as attain twenty-five. At X's death two children are twenty-eight and one is nine. What is the result? The gift is good as to the two who are already twenty-five, whose interests vest immediately. It offends section 14 as to the nine-year-old, because vesting is postponed beyond his minority. Section 15 confines the failure to him.

6. Why does section 18 exempt public transfers? Because the mischief of section 14 is property withdrawn from use and tied to a private family. An endowment for religion, knowledge, commerce, health, safety or another object beneficial to mankind dedicates property to continuing public use, which the law encourages rather than restrains.

7. If a gift to an unborn person fails under section 13, what happens to the gift that was to follow it? It fails too, under section 16, provided it was created in the same transaction and was intended to take effect after or on the failure of the prior interest.

(iii) the preservation or maintenance of the property transferred.

A portion is a share of property or money set aside to provide for a child, most often on marriage or on coming of age. The word is old but it is the Act's own.

All three exceptions have the same character, and saying so is worth a mark. Each is accumulation for a defined and productive purpose that will exhaust itself: paying off debts, providing for children, keeping the property in repair. None of them is accumulation for its own sake, which is what the section is aimed at. Accumulation for these purposes may be directed accordingly, without the cap.

Section 18 adds a fourth escape from outside: a transfer for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind is exempt from section 17 altogether, as it is from sections 14 and 16.

A worked example

In January 2026 Sudha transfers a commercial property at Pune to trustees, directing that the rent be accumulated and not paid to anyone for forty years, after which the whole fund and the property go to her grandson.

If Sudha dies in 2031, five years after the transfer, the two candidate periods are her life, which ran five years from the transfer, and eighteen years from the date of the transfer. Eighteen years is longer, so accumulation is lawful until January 2044. The direction is void as to the remaining twenty-two years, and from January 2044 the property and income are dealt with as if the accumulation period had ended.

If Sudha lives until 2056, thirty years after the transfer, her life is the longer period, so accumulation is lawful for those thirty years, and void for the remaining ten.

If the direction had been that the rent be accumulated for forty years to pay off the mortgage debt Sudha owed on the property, section 17(2)(i) applies and the cap does not bite at all, because the accumulation is for the payment of the transferor's debts.

If the direction had been to accumulate the rent for forty years to fund a free school on the property, section 18 exempts it, since that is a transfer for the benefit of the public in the advancement of knowledge.

What it does NOT mean

It does not make the transfer void. Only the excess period of accumulation is void, and the property is then dealt with as if the accumulation period had run out.

It does not offer a choice of periods. The longer of the two applies on the facts. A transferor cannot elect the shorter, nor is he confined to eighteen years merely because he chose to name a number.

Eighteen years is not a period of minority. It runs from the date of the transfer, and it has nothing to do with anybody's age. Confusing it with the minority in section 14 is the standard slip on this topic.

The three exceptions are purposes, not people. What matters is what the accumulation is for.

It does not apply to accumulation happening by accident. The section strikes at a direction in the terms of the transfer. Income that piles up because no one has claimed it is not caught.

Distinctions

Quick revision

• Section 17: accumulation may be directed for the life of the transferor or eighteen years from the date of the transfer, whichever is longer.
• Only the excess is void; at the end of the lawful period the property and income are dealt with as if the accumulation had run its course.
• Three exceptions in section 17(2): payment of debts; provision of portions for children or remoter issue; preservation or maintenance of the property.
• The eighteen years runs from the date of the transfer and is not a period of minority.
• Section 18 exempts transfers for the public benefit.

Test yourself

1. State the two periods in section 17 and how the choice is made. The life of the transferor, or eighteen years from the date of the transfer. The direction is void only so far as it exceeds the longer of the two on the facts, so the law takes whichever turns out to be longer.

2. A directs accumulation for twenty-five years and dies four years after the transfer. How long is the accumulation good for? Eighteen years from the date of the transfer, that being longer than his life after the transfer. The direction is void as to the remaining seven years.

3. Does a bad direction destroy the transfer? No. Only the excess period is void. At the end of the permitted period the property and its income are disposed of as if the directed accumulation period had elapsed.

4. Name the three purposes exempted by section 17(2). Payment of the debts of the transferor or of any person taking an interest under the transfer; provision of portions for children or remoter issue of the transferor or of such a person; and the preservation or maintenance of the property transferred.

5. Is the eighteen-year period connected with the age of any beneficiary? No. It runs from the date of the transfer. The minority in section 14 is a different idea and belongs to the rule against perpetuity.

The fourth is the subtle one and it is worth pausing on. A gift over on a future event does not make the first interest contingent. The first interest is vested but liable to be divested, meaning it belongs to the holder now and may be taken away later if the event occurs. That is a different thing from an interest that has not yet arisen.

Section 21: contingent interest. Where an interest is created to take effect only on the happening of a specified uncertain event, or if a specified uncertain event shall not happen, the person acquires a contingent interest. Such an interest becomes vested: in the first case, on the happening of the event; in the second, when the happening of the event becomes impossible.

That last clause is neat and is easily overlooked. A gift "to B if C does not marry within ten years" is contingent, and it vests not when ten years pass but at the moment C's marriage within the period becomes impossible.

Section 22: transfer to members of a class who attain a particular age. Where an interest is created in favour of such members only of a class as shall attain a particular age, the interest does not vest in any member who has not attained that age.

The words "such members only ... as shall attain" are what make this contingent. Contrast a gift to "the children of A, payable at twenty-one", where the age fixes the time of payment and not the class, and the interest is vested under section 19 with enjoyment postponed.

Section 23: contingent on an uncertain event, no time mentioned. Where an interest is to accrue to a specified person if a specified uncertain event shall happen, and no time is mentioned for its occurrence, the interest fails unless the event happens before, or at the same time as, the intermediate or precedent interest ceases to exist.

This gives the contingency a deadline that the deed forgot to supply. The property must vest in somebody when the prior interest ends, so the event must have happened by then.

Section 24: transfer to such as survive at a period not specified. Where an interest is to accrue to such of certain persons as shall be surviving at some period, but the exact period is not specified, the interest goes to those alive when the intermediate or precedent interest ceases to exist, unless a contrary intention appears.

The Act's own illustration: A transfers property to B for life, and after his death to C and D equally, or to the survivor of them. C dies during B's life. D survives B. At B's death the property passes to D.

The tests, side by side

Ask three questions of any gift.

One, is the event certain or uncertain? Certain, including death, means vested under section 19. Uncertain means contingent under section 21.

Two, does the condition attach to the vesting or only to the enjoyment? If the deed postpones only possession, the interest is vested. The Explanation to section 19 makes this explicit for four common drafting patterns.

Three, would the interest pass to the holder's heirs if he died today? If yes, it is vested. This is the practical test and it is usually the quickest.

A worked example

Nandini transfers her house at Kalyan to trustees by one deed containing five separate gifts. Her brother Om is alive.

Gift one: "to Om for life, and after his death to Pranav." Om's death is an event which must happen. Pranav's interest is therefore vested at once under section 19, with enjoyment postponed until Om dies. If Pranav dies before Om, his interest is not defeated: section 19 says so in terms, and it passes to Pranav's heirs, who take on Om's death.

Gift two: "to Om for life, and after his death to Pranav if Pranav is then a practising advocate." Being a practising advocate at a future date is a specified uncertain event. Pranav takes a contingent interest under section 21. If he dies before Om while not qualified, nothing passes to his heirs.

Gift three: "to such of Nandini's nephews as shall attain the age of twenty-five." Section 22. The interest does not vest in any nephew who has not reached twenty-five, because the class is defined by attaining the age. A nephew who dies at twenty-three takes nothing and passes nothing on.

Gift four: "to Om for life, and after his death to Quresh if Quresh returns from Canada." An uncertain event, with no time mentioned. Section 23 applies: the interest fails unless Quresh returns before, or at the same time as, Om's life interest ends. If he returns two years after Om's death, he takes nothing.

Gift five: "to Om for life, and after his death to Rina and Sameer equally, or to the survivor." Section 24 and the Act's illustration exactly. No exact period is specified, so the property goes to whichever of them is alive when Om's life interest ends.

Now change gift one slightly: "to Om for life, then to Pranav, but if Pranav becomes insolvent the property shall go to Tarun." Pranav's interest is still vested, because the fourth limb of the Explanation to section 19 says a provision that the interest shall pass to another on a particular event does not prevent vesting. It is vested subject to being divested.

What it does NOT mean

Vested does not mean in possession. An interest can be vested in interest while somebody else is in possession. The unborn child in section 20 has a vested interest from birth and no right to enjoy it until the prior interest ends.

A postponement of enjoyment does not make an interest contingent. The Explanation to section 19 rules that out, along with a prior interest, a direction to accumulate income, and a gift over on a specified event.

A contingent interest is not a mere expectancy. This is the distinction with section 6(a). A contingent interest is a present interest subject to an uncertain event and is transferable; a spes successionis is not an interest at all and cannot be transferred. See [What May Be Transferred].

Death is not an uncertain event. It is certain in fact though uncertain in time, so a gift after somebody's death is vested.

"Vested subject to divesting" is not the same as contingent. The first has arisen and may be taken away; the second has not arisen at all.

Section 22 is not about payment at an age. It applies where the class itself is defined by attaining the age. A gift to children "payable at twenty-one" vests earlier.

Distinctions

Quick revision

• Section 19: vested where no time is specified, or it takes effect forthwith, or on an event which must happen. Death is such an event.
• A vested interest is not defeated by the death of the transferee before possession.
• The Explanation to section 19: vesting is not prevented merely by postponed enjoyment, a prior interest, a direction to accumulate income, or a gift over on a specified event.
• Section 21: contingent where the interest depends on a specified uncertain event, or on such an event not happening. It vests on the event, or when the event becomes impossible.
• Section 22: a gift to such members only of a class as attain a particular age does not vest in a member below that age.
• Section 23: an uncertain event with no time mentioned must happen before or when the prior interest ends, or the interest fails.
• Section 24: survivors at an unspecified period are those alive when the prior interest ends. The Act's illustration: C dies during B's life, D survives, D takes.
• Quickest practical test: would it pass to his heirs if he died today?

Test yourself

1. "To A for life, then to B." Is B's interest vested or contingent? Vested. A's death is an event which must happen, so section 19 applies and only enjoyment is postponed.

2. B dies before A in that gift. Who takes on A's death? B's heirs. Section 19 provides that a vested interest is not defeated by the death of the transferee before he obtains possession.

3. "To A for life, then to B if B marries C." What kind of interest does B have? Contingent, under section 21, because the marriage is a specified uncertain event. It becomes vested if and when B marries C.

4. Give the four things listed in the Explanation to section 19. A provision postponing enjoyment; a provision giving or reserving a prior interest to another; a direction to accumulate the income until the time of enjoyment; and a provision that on a particular event the interest shall pass to another person. None of them prevents vesting by itself.

5. Distinguish a contingent interest from a spes successionis. A contingent interest is a present interest created by a transfer, depending on an uncertain event, and it is transferable. A spes successionis is the bare chance of succeeding to an estate, is not an interest at all, and section 6(a) makes a transfer of it void.

6. "To such of my nephews as attain twenty-five." A nephew dies at twenty-two. What does he take? Nothing. Section 22 provides that where an interest is created in favour of such members only of a class as shall attain a particular age, it does not vest in any member who has not attained it.

7. "To A for life, then to B if B returns from abroad", no time being mentioned. B returns a year after A dies. Does B take? No. Section 23 requires the uncertain event to happen before, or at the same time as, the intermediate or precedent interest ceases to exist. B's return came too late and the interest fails.

8. When does a contingent interest depending on an event NOT happening become vested? When the happening of that event becomes impossible, under the closing words of section 21.

(c) A transfers Rs. 500 to B on condition that she shall murder C. The transfer is void. Forbidden by law.

(d) A transfers Rs. 500 to his niece C if she will desert her husband. The transfer is void. Opposed to public policy.

The consequence under section 25 is that the interest fails, not merely the condition. That is the opposite of what happens under section 10, where the condition dies and the transfer lives. The difference is that here the interest is dependent upon the condition, so removing the condition would give the transferee something the transferor never offered.

Section 26: condition precedent, substantial compliance

A condition precedent is one to be fulfilled before a person can take an interest. Section 26 provides that such a condition is deemed to have been fulfilled if it has been substantially complied with.

The illustrations show exactly where the line falls:

(a) A transfers Rs. 5,000 to B on condition that he shall marry with the consent of C, D and E. E dies. B marries with the consent of C and D. B is deemed to have fulfilled the condition. The purpose of the condition, that the marriage should have the approval of those three, has been met as nearly as circumstances allow.

(b) A transfers Rs. 5,000 to B on the same condition. B marries without the consent of C, D and E, but obtains their consent after the marriage. B has not fulfilled the condition. Consent after the event is not consent to the marriage at all, so nothing of substance was complied with.

Put together, the two illustrations say that substantial compliance means meeting the substance of what was required, not doing something roughly similar afterwards.

Sections 27, 28 and 30: what happens to the other gifts

Section 27: an ulterior disposition on failure of the prior one. Where an interest is created in favour of one person, and by the same transaction an ulterior disposition of the same interest is made in favour of another to take effect if the prior disposition fails, the ulterior disposition takes effect on that failure although the failure may not have occurred in the manner the transferor contemplated.

An ulterior disposition is simply a later gift of the same interest, meant to operate if the first one does not.

But the second paragraph adds the exception: where the intention is that the ulterior disposition shall take effect only if the prior one fails in a particular manner, it does not take effect unless it fails in that manner.

The illustrations:

(a) A transfers Rs. 500 to B on condition that he shall execute a certain lease within three months after A's death, and if he should neglect to do so, to C. B dies in A's lifetime. The disposition in favour of C takes effect, even though B did not fail by neglecting; he failed by dying.

(b) A transfers property to his wife, but in case she should die in his lifetime, transfers to B what he had transferred to her. A and his wife perish together in circumstances making it impossible to prove she died first. The disposition in favour of B does not take effect, because the intention was that B should take only if the prior gift failed in that particular manner, and that manner cannot be proved.

Section 28: a condition superadded. An interest may be created to accrue to a person with a condition superadded that on a specified uncertain event happening, or not happening, the interest shall pass to another. Such dispositions are subject to sections 10, 12, 21, 22, 23, 24, 25 and 27. That list is a useful cross-check: the conditional-transfer rules do not float free of the rest of Module I.

Section 30: an invalid ulterior disposition does not destroy the prior one. If the ulterior disposition is not valid, the prior disposition is not affected by it.

Its illustration: A transfers a farm to B for her life, and, if she does not desert her husband, to C. B is entitled to the farm during her life as if no condition had been inserted. The condition attached to C's gift is opposed to public policy under section 25, so C takes nothing, and B keeps her life interest untouched.

Section 30 is the counterweight to section 16, and the pairing is worth an answer point. Under section 16 a subsequent interest falls with a prior one that failed under sections 13 or 14. Under section 30 a prior interest does not fall merely because the interest that was to follow it is invalid.

Sections 29, 31 and 32: conditions subsequent and determining conditions

Section 29: strict fulfilment. An ulterior disposition of the kind in section 28 cannot take effect unless the condition is strictly fulfilled.

Its illustration: A transfers Rs. 500 to B, to be paid on his attaining majority or marrying, with a proviso that if B dies a minor or marries without C's consent, the Rs. 500 shall go to D. B marries at seventeen without C's consent. The transfer to D takes effect, because the condition was strictly satisfied on its terms.

Section 31: a condition that the interest shall cease. Subject to section 12, an interest may be created with a condition superadded that it shall cease to exist if a specified uncertain event happens, or does not happen.

Its illustrations: A transfers a farm to B for life with a proviso that if B cuts down a certain wood the transfer shall cease; B cuts the wood and loses his life interest. And: A transfers a farm to B provided that if B does not go to England within three years his interest shall cease; B does not go, and his interest ceases.

Section 32: the condition must not be invalid. For a condition that an interest shall cease to be valid, the event to which it relates must be one which could legally constitute the condition of the creation of an interest. In other words, a condition cannot be used to take an interest away if it could not lawfully have been used to give it in the first place.

Sections 33 and 34: when the act must be done

Section 33: no time specified. Where an interest is created subject to a condition that the person taking it shall perform a certain act, and no time is specified, the condition is broken when he renders the performance impossible, permanently or for an indefinite period. So he is not in breach merely because he has not yet acted; he is in breach when he has put the act out of reach.

Section 34: time specified. Where an act is to be performed by a person either as a condition to be fulfilled before an interest is taken, or as a condition on the non-fulfilment of which the interest is to pass to another, and a time is specified, the act must be performed within that time.

A worked example

Ashwin, a widower, transfers a plot at Panvel to his nephew Bhaskar by deed, with three clauses.

Clause A: "to Bhaskar, if he obtains the consent of my three brothers to his marriage." A condition precedent: Bhaskar takes nothing until it is met. Suppose one brother has died and Bhaskar marries with the consent of the surviving two. Section 26 and illustration (a) apply: substantial compliance is enough, and Bhaskar is deemed to have fulfilled the condition. Had he married first and collected consents afterwards, illustration (b) would defeat him.

Clause B: "but if Bhaskar sells the plot within ten years, it shall go to my niece Charulata." A condition subsequent with an ulterior disposition. Section 29 requires it to be strictly fulfilled before Charulata can take. If Bhaskar mortgages the plot rather than selling it, the condition is not satisfied on its terms and Charulata takes nothing.

Clause C: "and if Bhaskar leaves the Hindu religion, his interest shall cease and the plot shall go to my friend Dinesh." Section 31 permits a condition that an interest shall cease, but section 32 requires the event to be one that could lawfully have been made the condition of creating an interest, and section 25 makes a condition void if the Court regards it as opposed to public policy. A condition penalising a change of religion is of that character, so the condition fails. By section 30, the invalidity of Dinesh's gift does not affect Bhaskar's prior interest, and Bhaskar holds the plot as if the clause had not been written.

What it does NOT mean

Section 25 does not merely strike out the condition. The interest fails, because it is dependent on the condition. Contrast section 10, where the transfer survives and the condition alone is void.

Substantial compliance is not near-enough compliance. Illustration (b) to section 26 shows that doing the thing at the wrong time is no compliance at all.

A condition subsequent is not tested loosely. Section 29 requires strict fulfilment, and the reason is that a forfeiture is at stake.

Failure "in a particular manner" is not the default. Section 27's rule is that an ulterior disposition takes effect however the prior one failed; the particular-manner requirement applies only where that was the intention.

Section 30 is not the same as section 16. Section 30 saves a prior interest when the later one is invalid. Section 16 destroys a later interest when the prior one failed under sections 13 or 14.

Impossibility is judged at the date of the transfer. Illustration (b) to section 25 turns on C being already dead when the transfer was made.

Distinctions

Quick revision

• Section 25: an interest dependent on a condition fails if the condition is impossible, forbidden by law, defeats any law, is fraudulent, injures another's person or property, or is immoral or against public policy. The interest fails, not just the condition.
• Section 26: a condition precedent needs only substantial compliance. Consent of two where the third has died is enough; consent obtained after the marriage is not.
• Section 29: a condition subsequent must be strictly fulfilled before the ulterior gift takes effect.
• Section 27: an ulterior disposition takes effect however the prior one failed, unless the intention was that it should fail in a particular manner.
• Section 28: such dispositions are subject to sections 10, 12, 21, 22, 23, 24, 25 and 27.
• Section 30: an invalid ulterior disposition does not affect the prior one. Contrast section 16.
• Section 31: an interest may be made to cease on a specified uncertain event, subject to section 12. Section 32: the event must be one that could lawfully have created an interest.
• Sections 33 and 34: no time specified, breach when performance is made impossible; time specified, perform within it.

Test yourself

1. Distinguish a condition precedent from a condition subsequent, and give the standard of compliance for each. A condition precedent must be fulfilled before the person can take the interest, and section 26 requires only substantial compliance. A condition subsequent operates after the interest has vested and defeats it, and section 29 requires strict fulfilment.

2. Why does the law demand strict compliance for one and only substantial compliance for the other? Because both leanings favour the person who holds or is to hold the property. A condition precedent stands between him and a gift, so the law is generous; a condition subsequent would take away what he already has, so the law is exacting.

3. A transfers Rs. 5,000 to B if he marries with the consent of C, D and E. B marries with the consent of C and D, E having died. Result? B is deemed to have fulfilled the condition. This is illustration (a) to section 26: substantial compliance suffices where the remainder is impossible.

4. A gives property to B on condition that B shall murder C. What happens? The interest fails under section 25, the condition being forbidden by law. Since the interest is dependent on the condition, B takes nothing.

5. A transfers a farm to B for life, and if she does not desert her husband, to C. What does B take? B is entitled to the farm during her life as if no condition had been inserted. The condition attached to C's gift is opposed to public policy, so it is void, and section 30 provides that the invalidity of the ulterior disposition does not affect the prior one.

6. A transfers Rs. 500 to B on condition that he executes a lease within three months of A's death, failing which to C. B dies during A's lifetime. Does C take? Yes. Section 27 provides that the ulterior disposition takes effect on the failure of the prior one although the failure did not occur in the manner contemplated.

7. When is a condition broken where no time is specified for performing the act? Under section 33, when the person renders the performance of the act impossible, permanently or for an indefinite period. Mere delay is not a breach.

But the section attaches a charge to the reverting benefit in two situations, and this is the part most often missed:

• where the transfer was gratuitous and the transferor has, before the election, died or otherwise become incapable of making a fresh transfer; and
• in all cases where the transfer is for consideration.

In those cases the reverting benefit carries the charge of making good to the disappointed transferee the amount or value of the property attempted to be transferred to him.

The Act's illustration shows both halves:

The farm of Sultanpur is the property of C and worth Rs. 800. A by an instrument of gift professes to transfer it to B, giving by the same instrument Rs. 1,000 to C. C elects to retain the farm. He forfeits the gift of Rs. 1,000.

In the same case, A dies before the election. His representative must out of the Rs. 1,000 pay Rs. 800 to B.

So while A is alive and the transfer is gratuitous, the whole Rs. 1,000 simply goes back to A; A can make fresh arrangements for B if he wishes. Once A is dead and cannot, the law compensates the disappointed transferee B out of the returning fund, to the value of the property attempted to be transferred, which is Rs. 800, and the balance of Rs. 200 stays with A's estate.

Four supplementary rules

The section then adds four rules, and they are examined as a set.

The transferor's belief is irrelevant. The rule applies whether or not he believes the property to be his own.

An indirect benefit does not require election. A person taking no benefit directly under the transaction, but deriving a benefit under it indirectly, need not elect.

Different capacities are treated separately. A person who in one capacity takes a benefit under the transaction may in another capacity dissent from it. So a man who takes a legacy personally and is also a trustee of the property professed to be transferred is not fixed in both roles by one choice.

The exception: a benefit expressed to be in lieu. Where a particular benefit is expressed to be conferred on the owner in lieu of the property the transferor professes to transfer, then if the owner claims his property he must relinquish that particular benefit, but he is not bound to relinquish any other benefit conferred on him by the same transaction.

This exception rewards precise drafting. If the deed says plainly "and in place of the farm I give C Rs. 1,000", C loses only the Rs. 1,000 if he keeps the farm, and any separate legacy in the same deed is safe. Where nothing is expressed to be in lieu, the general rule bites and everything taken under the instrument is at risk.

How an election is made

By acceptance, with knowledge. Acceptance of the benefit constitutes an election to confirm the transfer, if the person is aware of his duty to elect and of the circumstances which would influence the judgment of a reasonable man in making an election, or if he waives enquiry into those circumstances.

A presumption after two years. Such knowledge or waiver is presumed, in the absence of evidence to the contrary, if the person has enjoyed the benefit for two years without doing any act to express dissent.

By an act that cannot be undone. Knowledge or waiver may be inferred from any act of his which renders it impossible to place the persons interested in the property in the same condition as if the act had not been done. The Act's illustration: A transfers to B an estate to which C is entitled, and as part of the same transaction gives C a coal-mine; C takes possession of the mine and exhausts it; he has thereby confirmed the transfer of the estate to B.

A requisition after one year. If the owner does not, within one year after the date of the transfer, signify to the transferor or his representatives his intention to confirm or dissent, they may require him to elect. If he does not comply within a reasonable time after receiving the requisition, he is deemed to have elected to confirm the transfer.

Disability postpones election. In case of disability, the election is postponed until the disability ceases, or until an election is made by some competent authority.

Note the shape of those rules. Silence alone never amounts to election; what converts silence into a choice is either two years of enjoyment, an irreversible act, or a failure to answer a requisition.

A worked example

Gopal owns a shop at Nagpur worth Rs. 20 lakh. His uncle Harish, by a single registered gift deed, purports to give that shop to his friend Ishaan and, by the same deed, gives Gopal a plot at Wardha worth Rs. 30 lakh.

Harish had no right to give Gopal's shop. He confers a benefit on Gopal, the owner of that shop, by the same transaction. Gopal must elect.

If Gopal confirms, Ishaan takes the shop and Gopal keeps the Wardha plot.

If Gopal dissents, he keeps his shop and must relinquish the Wardha plot, which reverts to Harish as if it had never been given.

If Harish has died before Gopal elects, and Gopal dissents, the reverting plot carries a charge to make good to Ishaan the value of the shop, Rs. 20 lakh, and the balance of Rs. 10 lakh goes to Harish's estate. Gopal keeps his shop; Ishaan is compensated; nobody takes twice.

If the deed had said "and in lieu of the shop I give Gopal the Wardha plot", and had also separately given Gopal a car, the exception applies. Gopal keeping the shop loses the plot only, and keeps the car.

If Gopal takes the Wardha plot, builds on it and sells it, he has done an act which makes it impossible to restore the parties to their former position, and he is taken to have confirmed the transfer of the shop to Ishaan.

If Gopal says nothing for eighteen months but has been drawing rent from the plot, no presumption arises yet; two years have not passed. Harish may serve a requisition, and if Gopal does not answer within a reasonable time he is deemed to have confirmed.

What it does NOT mean

It does not divest the owner of his property. Election never takes the property away. It only forces a choice between keeping it and keeping the benefit.

It does not depend on the transferor's honesty. The section applies whether or not he believed the property was his.

It does not apply to an indirect benefit. Only a benefit taken directly under the transaction raises the duty.

Dissent does not always mean the disappointed transferee goes uncompensated. The charge applies wherever the transfer was for consideration, and also where it was gratuitous but the transferor has died or become incapable before the election.

Two years is a presumption, not a rule of law. It operates "in the absence of evidence to the contrary".

The one-year period is not a deadline for electing. It is the point at which the transferor may require an election. What forfeits the choice is failing to answer the requisition in a reasonable time.

Distinctions

Quick revision

• The maxim: he who takes a benefit under an instrument must give full effect to it.
• Three conditions: the transferor professes to transfer property he has no right to transfer; he confers a benefit on the owner of that property; both in the same transaction.
• It applies whether or not the transferor believed the property was his.
• Dissent means relinquishing the benefit, which reverts to the transferor.
• The reverting benefit bears a charge to compensate the disappointed transferee to the value of the property attempted to be transferred, where the transfer was for consideration, or was gratuitous and the transferor has died or become incapable before the election.
• Illustration: Sultanpur farm worth Rs. 800, gift of Rs. 1,000 to C. C keeps the farm and forfeits Rs. 1,000. If A has died, Rs. 800 of it goes to B.
• Indirect benefit, no election. Different capacities, separate choices.
• Exception: a benefit expressed to be in lieu costs the owner only that benefit.
• Election by acceptance with knowledge; presumed after two years' enjoyment; inferred from an irreversible act; deemed on failure to answer a requisition, available after one year. Disability postpones it.

Test yourself

1. State the three conditions for election under section 35. The transferor professes to transfer property which he has no right to transfer; as part of the same transaction he confers a benefit on the owner of that property; and the person put to election is that owner.

2. Does it matter that the transferor honestly thought the property was his? No. Section 35 provides that the rule applies whether or not the transferor believes that which he professes to transfer to be his own.

3. A, by gift, purports to give C's farm worth Rs. 800 to B, and gives C Rs. 1,000 by the same deed. C keeps the farm and A is alive. What happens to the Rs. 1,000? C forfeits it and it reverts to A as if it had not been disposed of. Because the transfer was gratuitous and A is alive and able to make a fresh transfer, no charge arises in B's favour.

4. Same facts, but A dies before C elects. What does B get? A's representative must pay B Rs. 800 out of the Rs. 1,000, that being the value of the property attempted to be transferred to B. The remaining Rs. 200 stays with A's estate.

5. When is a person presumed to have elected to confirm merely by enjoying the benefit? Where he has enjoyed it for two years without doing any act to express dissent, in the absence of evidence to the contrary.

6. What is the effect of a benefit being expressed to be "in lieu of" the property? The owner who claims his property must relinquish that particular benefit only, and is not bound to relinquish any other benefit conferred by the same transaction.

7. Does a person who benefits only indirectly have to elect? No. The section provides that a person taking no benefit directly under a transaction, but deriving a benefit under it indirectly, need not elect.

Section 37: apportionment by estate

Section 37 deals with the reverse situation: the property is divided, and the obligation attached to it has to be shared.

Where, in consequence of a transfer, property is divided and held in several shares, and the benefit of an obligation relating to the property as a whole passes from one to several owners, the corresponding duty must, in the absence of a contract to the contrary among the owners, be performed in favour of each owner in proportion to the value of his share, provided that:

• the duty can be severed; and
• the severance does not substantially increase the burden of the obligation.

If the duty cannot be severed, or severance would substantially increase the burden, the duty is to be performed for the benefit of such one of the several owners as they jointly designate for that purpose.

Two further rules complete the section.

Notice. A proviso protects the person who owes the duty: nobody on whom the burden lies is answerable for failing to discharge it in the manner the section provides unless and until he has had reasonable notice of the severance. That is fair: a tenant cannot be blamed for paying the whole rent to the original landlord when nobody told him the property had been split.

Agricultural leases. Nothing in the section applies to leases for agricultural purposes unless and until the State Government so directs by notification in the Official Gazette.

The Act's two illustrations, which are the clearest statement of the divisible and indivisible cases:

(a) A sells to B, C and D a house in a village leased to E at an annual rent of Rs. 30 and delivery of one fat sheep, B having provided half the purchase money and C and D one quarter each. E, having notice of this, must pay Rs. 15 to B, Rs. 7.50 to C and Rs. 7.50 to D, and must deliver the sheep according to the joint direction of B, C and D.

Money divides; a sheep does not. So the rent is apportioned in proportion to the shares, and the indivisible part of the obligation is performed for whichever owner the three of them jointly designate.

(b) In the same case, each house in the village is bound to provide ten days' labour each year on a dyke to prevent inundation, and E had agreed as a term of his lease to perform this work for A. B, C and D severally require E to perform the ten days' work due on account of the house of each. E is not bound to do more than ten days' work in all, according to such directions as B, C and D may join in giving.

This is the "substantially increase the burden" limb in action. Splitting the duty three ways would turn ten days into thirty, which is not apportionment but multiplication, and the section refuses it.

A worked example

Latha owns a shop at Aurangabad let to a tenant, Mahesh, at Rs. 60,000 a year payable on 31 March. On 30 September she sells the shop to three buyers, Nitin, Omkar and Pooja, who provide half, a quarter and a quarter of the price respectively. The lease also obliges Mahesh to whitewash the building once a year.

Apportionment by time, section 36. The rent for the year is earned from day to day. Latha owned the shop for the first six months and the buyers for the last six. As between them, half the annual rent belongs to Latha and half to the buyers. Mahesh is unaffected: he pays the whole Rs. 60,000 on 31 March, the day appointed, and the parties settle between themselves.

Apportionment by estate, section 37. The buyers' half of the rent is Rs. 30,000, and the duty to pay it is severable without increasing the burden. So Mahesh, once he has reasonable notice of the severance, pays Rs. 15,000 to Nitin, Rs. 7,500 to Omkar and Rs. 7,500 to Pooja, in proportion to the value of their shares.

The whitewashing cannot be severed sensibly, and requiring it three times over would substantially increase the burden. It is therefore performed for the benefit of whichever of the three they jointly designate, and Mahesh whitewashes once.

If nobody had told Mahesh about the sale, and he had paid the whole rent to Latha, the proviso protects him. He is not answerable for failing to pay in the manner the section provides until he has had reasonable notice of the severance.

What it does NOT mean

Section 36 does not change what the tenant owes or when. The sums remain payable on the days appointed. Apportionment operates between transferor and transferee.

It is not confined to rent. Annuities, pensions, dividends and other periodical income are covered.

It is not mandatory. A contract or local usage to the contrary displaces it.

Section 37 does not multiply the obligation. Where severance would substantially increase the burden, the duty is performed once, for a jointly designated owner.

Section 37 does not bind a person who has not been told. Reasonable notice of the severance is a precondition of liability under the section.

Section 37 does not apply to agricultural leases unless the State Government notifies.

Apportionment under section 36 is not the same as the rule in section 8. Section 8 decides who gets rent that accrued before and after the transfer as whole periods; section 36 splits the single instalment that straddles the transfer date, day by day.

Distinctions

Quick revision

• Section 36: rents, annuities, pensions, dividends and other periodical income accrue from day to day and are apportionable as between transferor and transferee, but remain payable on the appointed days.
• It is subject to a contract or local usage to the contrary.
• Section 37: on a division of property into shares, the corresponding duty is performed for each owner in proportion to the value of his share.
• Two conditions: the duty must be severable, and severance must not substantially increase the burden.
• If it cannot be severed, it is performed for one owner jointly designated by them.
• The person bearing the burden is not answerable until he has had reasonable notice of the severance.
• Section 37 does not apply to agricultural leases unless the State Government notifies.
• Illustration: Rs. 30 rent split Rs. 15, Rs. 7.50 and Rs. 7.50; the fat sheep delivered on joint direction; ten days' dyke labour stays ten days in all.

Test yourself

1. A house let at Rs. 12,000 a year, payable yearly on 31 December, is sold on 1 July. How is the rent divided? As between seller and buyer the rent accrues from day to day under section 36, so each is entitled to roughly half, the seller for January to June and the buyer for July to December. The tenant still pays the whole Rs. 12,000 on 31 December.

2. Does section 36 require the tenant to pay part of the rent early? No. The section provides that the payments are apportionable but remain payable on the days appointed for their payment.

3. Which payments does section 36 cover? Rents, annuities, pensions, dividends and other periodical payments in the nature of income.

4. When is a duty not apportioned under section 37? Where the duty cannot be severed, or where severance would substantially increase the burden of the obligation. It is then performed for the benefit of one of the owners whom they jointly designate.

5. A tenant owed ten days' labour a year on a dyke. The house is sold to three buyers, who each demand ten days. What must he do? Ten days in all, according to directions the three of them join in giving. Illustration (b) to section 37: severing the duty three ways would substantially increase the burden.

6. A tenant, not knowing the property has been divided, pays the whole rent to the original landlord. Is he liable to the new co-owners? Not under section 37 until he has had reasonable notice of the severance, which the proviso makes a precondition of his answerability.

Two features of the section are worth marking. It creates a deemed fact, not merely a defence: the necessity is treated as having existed. And it binds not only the transferor but the "other persons affected by the transfer", which is what makes it useful, since those persons, the reversioners or the minor, are the ones who would otherwise attack the sale.

Reasonable care is the working test and it means real enquiry, not a recital in the deed. A buyer who accepts the seller's word without asking anything has not used reasonable care, and a clause in the sale deed saying that necessity exists proves nothing by itself.

Section 39: property charged with maintenance

The provision. Where a third person has a right to receive maintenance, or a provision for advancement or marriage, from the profits of immovable property, and that property is transferred, the right may be enforced against the transferee if he has notice of it or if the transfer is gratuitous; but not against a transferee for consideration and without notice of the right, nor against the property in his hands.

Advancement here means a provision made to set a child up in life, and the section groups it with maintenance and marriage expenses because all three are provisions for a dependant.

The 1929 amendment matters and is examinable. As originally enacted the section applied where the property was transferred "with the intention of defeating such right". Those words were omitted in 1929. So the transferor's intention is now irrelevant: the question is only whether the transferee had notice or took gratuitously. That change turned a section about fraud into a section about notice, and it made the right far easier to enforce.

Who is protected and who is not. The transferee is safe only if he is both a transferee for consideration and without notice. A donee takes subject to the right however innocent he is, because he has parted with nothing. A purchaser who knew, or who is fixed with constructive or imputed notice under section 3, takes subject to it.

That is where this chapter connects to [The Interpretation Clause: Attestation, Notice and the Words the Act Runs On]. A buyer will often be fixed with notice by Explanation II to section 3, because the person entitled to maintenance is frequently living in the very house.

The limit of the right. Section 39 does not give the dependant an interest in the property. It gives a right enforceable against the property in the hands of the wrong kind of transferee. And section 6(dd) makes the right to future maintenance itself untransferable, so the dependant cannot sell it.

A worked example

Kamala, a widow, holds her late husband's land at Latur as a limited owner, her husband having left collateral heirs. Her mother-in-law Sarojini has a decree entitling her to maintenance of Rs. 10,000 a month out of the profits of that land, and lives in the house on it.

Kamala sells a field to Ravi, telling him that the income is not enough to maintain her. Ravi examines the revenue records, asks the neighbours and the village officer about the income, satisfies himself that the sale is necessary, pays the price and takes the deed. Years later the collateral heirs sue to set the sale aside, proving that Kamala had other income she had concealed.

Section 38 answers them. Ravi is a transferee for consideration; Kamala alleged the circumstances; Ravi used reasonable care and acted in good faith. As between Ravi on one side and Kamala and the collateral heirs on the other, the necessity is deemed to have existed, and the sale stands.

Change the facts: Ravi asked nothing at all and simply relied on a recital in the deed. He has not used reasonable care, section 38 does not protect him, and the heirs may have the sale set aside.

Now Sarojini's maintenance. If Ravi bought for consideration and genuinely knew nothing of the decree, the maintenance cannot be enforced against him or against the field in his hands. But Sarojini was living in the house. Under Explanation II to section 3, Ravi is deemed to have notice of the title of a person in actual possession, so in practice he will be fixed with notice and takes subject to her right.

If Kamala had gifted the field to her nephew instead of selling it, the nephew takes subject to Sarojini's right whether or not he knew of it, because the transfer is gratuitous.

What it does NOT mean

Section 38 does not validate every sale by a limited owner. It protects only a transferee for consideration who made real enquiry and acted honestly.

A recital of necessity is not reasonable care. The enquiry must actually be made.

Section 38 does not apply to movable property. The words are "immoveable property".

Section 39 no longer requires an intent to defeat the right. Those words were omitted in 1929, and citing them is a dated answer.

Section 39 does not create an interest in the property. It creates a right enforceable against certain transferees.

Being a purchaser is not enough under section 39. The transferee must be for consideration and without notice, and notice includes constructive and imputed notice under section 3.

Distinctions

Quick revision

• Section 38 protects a purchaser from a person authorised to sell only in circumstances of a variable nature, for example legal necessity.
• Conditions: immovable property; transfer for consideration; the circumstances alleged; reasonable care used to ascertain them; good faith.
• Effect: the circumstances are deemed to have existed as between the transferee and the transferor and other persons affected.
• The Act's illustration is the Hindu widow selling a field for maintenance, with B making reasonable enquiry.
• Section 39: a right to maintenance, advancement or marriage out of the profits of immovable property is enforceable against a transferee with notice or a gratuitous transferee, and not against a transferee for consideration without notice.
• The words "with the intention of defeating such right" were omitted in 1929, so intention is irrelevant.
• Notice includes constructive and imputed notice, and Explanation II to section 3 often fixes a buyer with it where the dependant is in possession.
• Section 6(dd) makes the right to future maintenance itself untransferable.

Test yourself

1. What are "circumstances in their nature variable"? Circumstances on which a limited authority to sell depends and which come and go, such as the legal necessity that permits a Hindu widow holding a limited estate, or a guardian, or a family manager, to sell.

2. State the conditions a transferee must satisfy under section 38. The property must be immovable; the transfer must be for consideration; the transferor must have alleged the existence of the circumstances; and the transferee must have used reasonable care to ascertain their existence and acted in good faith.

3. Is a recital of legal necessity in the sale deed enough? No. Section 38 requires the transferee to have used reasonable care to ascertain that the circumstances existed, which means actual enquiry. A recital is the seller's own assertion.

4. Why was the phrase "with the intention of defeating such right" removed from section 39? Because it made the dependant prove the transferor's state of mind, which was often impossible. Since 1929 the section turns on the transferee's notice or the gratuitous character of the transfer.

5. A widow entitled to maintenance out of a house lives in it. The house is sold to a buyer who says he never heard of her claim. Is he bound? In practice yes. Explanation II to section 3 deems a person acquiring immovable property to have notice of the title of anyone in actual possession, so he is fixed with notice and section 39 lets the right be enforced against him.

6. Does a donee take free of a maintenance right if he knew nothing about it? No. Section 39 protects only a transferee for consideration without notice. A gratuitous transferee is bound whatever he knew.

The enforcement rule, common to both. Such a right or obligation may be enforced against a transferee with notice of it, or against a gratuitous transferee of the property affected, but not against a transferee for consideration and without notice of the right or obligation, nor against such property in his hands.

The Act's illustration shows the second limb doing its most important work:

A contracts to sell Sultanpur to B. While the contract is still in force he sells Sultanpur to C, who has notice of the contract. B may enforce the contract against C to the same extent as against A.

This is worth dwelling on, because it is the practical heart of the section for an Indian student. An agreement to sell creates no interest in the land: section 54 says in terms that a contract for sale does not of itself create any interest in or charge on the property. So the buyer under an agreement to sell has no proprietary right. What he has is the benefit of an obligation annexed to the ownership of the land, and section 40 lets him enforce it against a later purchaser who had notice. That is the statutory foundation of a suit for specific performance against a subsequent transferee.

What the right is, and is not

Section 40 describes the right in negatives twice: not an interest in the property, not an easement. Its exact nature is best put as an equity annexed to the land, enforceable against those who take the land with notice.

The consequence is that it does not bind the world. It binds:

• a transferee with notice, actual, constructive or imputed under section 3; and
• a gratuitous transferee, whether or not he had notice, because he gave nothing.

It does not bind a transferee for consideration without notice, who is the classic bona fide purchaser, and it does not bind the property in his hands, so it cannot be revived if the property later passes to someone who does know.

Section 40 and the second paragraph of section 11

These two provisions are two halves of one idea, and holding them together answers most problems on this topic.

Section 11 says a direction as to how an absolute interest is to be enjoyed is disregarded. The second paragraph of section 11 excepts a direction made in respect of one piece of immovable property for the purpose of securing the beneficial enjoyment of another piece of such property, and preserves the transferor's right to enforce it.

Section 40 then tells you against whom such a right can be enforced once the burdened land has changed hands.

So the sequence in a problem is: is there a direction restricting the use of land? If it protects the transferor's other land, section 11's second paragraph saves it from being struck out. If the burdened land has since been sold, section 40 decides whether the new owner is bound, and the answer turns on notice and consideration.

A worked example

Vidya owns two adjoining plots at Chembur, plot A and plot B. She sells plot B to Waman by a registered deed containing a covenant that Waman and those claiming under him will not build above one storey on plot B. Vidya keeps plot A, whose sea view the covenant protects.

Is the covenant good in the first place? Yes. It is a direction restricting the use of plot B, made for the beneficial enjoyment of plot A, which Vidya retained. The second paragraph of section 11 preserves it, and it falls within the first limb of section 40 as a right to restrain the enjoyment of another's property for the more beneficial enjoyment of one's own.

Waman sells plot B to Xerxes, whose sale deed recites the covenant. Xerxes has actual notice. Vidya may enforce the covenant against him under section 40.

Waman instead sells plot B to Yusuf for full value. The covenant was in a registered deed, and Explanation I to section 3 deems a person acquiring the property to have notice of a registered instrument that the law required to be registered and which was properly registered. Yusuf is fixed with constructive notice and is bound.

Waman gifts plot B to his son Zain, who has never heard of the covenant. Zain is a gratuitous transferee and is bound whether or not he had notice.

Waman sells plot B to a buyer for full value in a State where the deed was not registrable and nothing put the buyer on enquiry. That buyer is a transferee for consideration without notice, takes free, and the covenant cannot afterwards be enforced against the property in his hands.

Now the illustration's situation. Suppose instead Vidya had contracted to sell plot A to Anil, and while that contract was still in force sold plot A to Bhushan, who knew of Anil's agreement. Anil has no interest in plot A, since a contract for sale creates none. But under section 40 he may enforce the contract against Bhushan to the same extent as against Vidya.

What it does NOT mean

It does not create an interest in land. Section 40 says so twice: the right is independent of any interest in the other property and does not amount to an interest or easement.

It does not bind everybody. Only a transferee with notice, or a gratuitous transferee.

It does not survive a sale to a purchaser for value without notice. The section adds that it cannot be enforced against the property in his hands, so the equity is destroyed rather than suspended.

It is not an easement. An easement is a right in the land of another, acquired and extinguished under the Indian Easements Act 1882. A covenant under section 40 is contractual in origin and binds by notice.

A positive obligation is not generally enforced by this route. The first limb is a right to restrain enjoyment. The second limb speaks of an obligation annexed to ownership, and the illustration is a contract of sale; a covenant requiring the owner to spend money is a different matter and is not what the section is aimed at.

It is not the same as sections 10 to 12. Those strike restrictions down. This enforces them.

Distinctions

Quick revision

• Section 40 has two limbs: a right to restrain the enjoyment of another's land for the more beneficial enjoyment of one's own; and the benefit of an obligation arising out of contract and annexed to the ownership of immovable property.
• Neither amounts to an interest in the land or an easement.
• Enforceable against a transferee with notice and against a gratuitous transferee; not against a transferee for consideration without notice, nor against the property in his hands.
• Notice includes constructive and imputed notice under section 3, and a registered deed supplies it by Explanation I.
• The illustration is the key: A contracts to sell Sultanpur to B, then sells to C who has notice; B may enforce against C as against A. This is the basis of specific performance against a later purchaser.
• Pairs with the second paragraph of section 11, which saves a direction made to secure the beneficial enjoyment of the transferor's other property.
• Contrast sections 10 to 12, which strike restrictions down.

Test yourself

1. What kind of right does section 40 protect? A right to restrain the enjoyment of another's immovable property for the more beneficial enjoyment of one's own, held independently of any interest in that property or easement over it; and the benefit of an obligation arising out of contract and annexed to the ownership of immovable property but not amounting to an interest or easement.

2. Against whom can it be enforced? Against a transferee who has notice of it, and against a gratuitous transferee. Not against a transferee for consideration without notice, nor against the property in his hands.

3. A sells a plot with a covenant not to build a factory on it. The buyer resells to X for full value, the covenant appearing in the registered deed. Is X bound? Yes. Explanation I to section 3 fixes X with notice of a properly registered instrument that the law required to be registered, so X is a transferee with notice and section 40 binds him.

4. Does an agreement to sell create an interest in the land? No. Section 54 provides that a contract for sale does not of itself create any interest in or charge on the property. The buyer's protection against a later purchaser comes from section 40, which lets him enforce the obligation against a transferee with notice.

5. How does section 40 differ from section 11? Section 11 disregards a direction as to the enjoyment of an absolute interest; its second paragraph excepts a direction securing the beneficial enjoyment of the transferor's other property. Section 40 then decides against which later owners such a right can be enforced.

6. Is a covenant under section 40 an easement? No. The section says the right is independent of any easement and does not amount to one. An easement is a right in the land of another under the Indian Easements Act 1882; a section 40 right is contractual in origin and binds by notice.

Held. The Supreme Court affirmed the High Court. The burden of proving that a sale is benami and that the apparent purchaser is not the real owner rests always on the person asserting it, and must be strictly discharged by legal evidence of a definite character which either directly proves the benami or establishes circumstances unerringly and reasonably raising that inference. The Court set out six circumstances as the tests: the source from which the purchase money came; the nature and possession of the property after the purchase; the motive for giving the transaction a benami colour; the position of the parties and their relationship; the custody of the title deeds after the sale; and the conduct of the parties in dealing with the property afterwards. Of these, the source of the purchase money is by far the most important.

Why it matters here. Section 41 turns on a person being an ostensible owner with the real owner's consent, and the commonest ostensible owner is a benamidar. This case supplies what the section leaves out: who must prove what, and the six circumstances a court actually weighs. It also shows that the label is not lightly applied, since suspicion is not proof.

The five conditions

A transferee who wants the protection of section 41 must establish all of these.

One, the transferor was the ostensible owner of the property.

Two, he was so with the consent, express or implied, of the persons interested in the property. Consent may be inferred from conduct, and standing by while another is treated as owner is enough. It cannot be inferred where the real owner is under a disability, so consent from a minor or a person of unsound mind will not do.

Three, the transfer was for consideration. A donee gets nothing from this section, for the same reason as in sections 39 and 40: he has parted with nothing and has no equity to weigh against the true owner's.

Four, the transferee took reasonable care to ascertain that the transferor had power to make the transfer. This is the proviso, and it is where most claims fail. It is not satisfied by looking at possession alone. It means the enquiry a prudent buyer would make: examining the title deeds, searching the register, checking the revenue and municipal records, and asking about anyone else in occupation. Reasonable care is judged on what the circumstances called for, and anything that should have put the buyer on enquiry raises the standard.

Five, the transferee acted in good faith, that is honestly. A buyer who suspected the truth and pressed on, or who deliberately avoided asking, is not in good faith, and the definition of notice in section 3 makes wilful abstention from enquiry equivalent to knowledge.

Property must be immovable. The section says so.

The section then provides the consequence: the transfer shall not be voidable on the ground that the transferor was not authorised to make it.

A worked example

Bhagwan buys a house at Nashik with his own money in 2019 and has it registered in the name of his cousin Chetan, so as to keep it out of the reach of his business creditors. Chetan's name goes into the municipal record; Chetan collects the rent and pays the tax; the title deeds are kept by Chetan. Bhagwan says nothing to anybody.

In 2026 Chetan sells the house to Deepika for its full market value.

Was Chetan the ostensible owner? Yes. He held the title deeds, the record stood in his name, he received the rents and paid the taxes. Those are the indicia of ownership, and on the tests in the case above, everything except the source of the purchase money pointed to him.

Was it with Bhagwan's consent? Yes, and expressly: Bhagwan arranged it.

Was it for consideration? Yes, full market value.

Did Deepika take reasonable care? Suppose she examined the title deeds in Chetan's possession, obtained a search of the sub-registrar's record showing the 2019 purchase in his name, checked the municipal record and found no other occupant. That is reasonable care.

Did she act in good faith? On these facts, yes.

Section 41 therefore protects Deepika, and Bhagwan cannot have the sale set aside. His remedy is a personal one against Chetan for the price. The loss falls on him because his own arrangement created the appearance that deceived her.

Change one fact. Suppose a tenant told Deepika that he had always paid rent to Bhagwan, and she did not follow it up. That should have put her on enquiry, so she has not taken reasonable care, and section 41 does not save her.

Change another. Suppose Chetan had gifted the house to Deepika. The section requires a transfer for consideration, so it does not apply and Bhagwan recovers.

And another. Suppose the true owner had been Bhagwan's minor son, the property having been put in Chetan's name by the family. A minor cannot consent, so the second condition fails and section 41 gives Deepika no protection.

What it does NOT mean

It does not make the ostensible owner the real owner. As between him and the true owner nothing changes. The section protects the transferee.

It does not protect a gratuitous transferee. Consideration is a condition.

Possession alone is not enough enquiry. The proviso requires reasonable care to ascertain that the transferor had power to make the transfer, which means going to the title and the records.

It does not apply to movable property. The words are "immoveable property".

Consent cannot come from a person under disability. A minor or a person of unsound mind cannot give the consent the section requires.

Reasonable care is not a fixed checklist. It rises with anything that ought to arouse suspicion, and a buyer who shuts his eyes is fixed with notice under section 3.

It does not apply where the real owner did not consent at all. A forger or a trespasser who simply pretends to own land is not an ostensible owner within the section, because nothing was done with the real owner's consent.

Distinctions

Quick revision

• Section 41 is an exception to nemo dat quod non habet, and rests on the rule that where one of two innocent people must suffer, the loss falls on the one who made the fraud possible.
• An ostensible owner is a person clothed by the real owner's consent with the indicia of ownership: title deeds, records, rents, taxes. The commonest instance is a benamidar.
• Five conditions: ostensible owner; consent of the persons interested, express or implied; transfer for consideration; reasonable care to ascertain the transferor's power; good faith. The property must be immovable.
• Effect: the transfer is not voidable on the ground that the transferor was not authorised.
• Jaydayal Poddar v. Mst. Bibi Hazra, AIR 1974 SC 171: the burden of proving benami is on the person asserting it and must be strictly discharged; six tests, of which the source of the purchase money is by far the most important.
• Consent cannot be given by a person under disability.
• The true owner's remedy is personal, against the ostensible owner.

Test yourself

1. What is the general rule that section 41 departs from, and why is the departure justified? Nemo dat quod non habet: nobody can pass a better title than he has. The departure is justified because the real owner himself created the appearance of ownership that misled the buyer, and as between two innocent parties the loss should fall on the one whose act made the deception possible.

2. List the conditions of section 41. The transferor was the ostensible owner of immovable property; he was so with the express or implied consent of the persons interested; the transfer was for consideration; the transferee took reasonable care to ascertain that the transferor had power to make the transfer; and the transferee acted in good faith.

3. A buyer sees the seller in possession and buys without examining the title deeds or searching the register. Is he protected? No. The proviso requires reasonable care to ascertain that the transferor had power to transfer, and possession alone does not establish that. He has not satisfied the proviso.

4. Who bears the burden of proving that a purchase was benami, and what is the most important test? The person asserting the benami character bears it and must discharge it strictly by definite legal evidence, as held in Jaydayal Poddar v. Mst. Bibi Hazra, AIR 1974 SC 171. Of the six circumstances the Court listed, the source from which the purchase money came is by far the most important.

5. Does section 41 protect a person who receives the property as a gift from the ostensible owner? No. The section requires a transfer for consideration.

6. Can the consent required by section 41 be given by a minor who owns the property? No. A person under a disability cannot give the consent the section requires, so the protection does not arise.

7. What is the real owner left with? A personal remedy against the ostensible owner, typically for the sale proceeds. He cannot recover the property from a transferee protected by the section.

The illustration is careful. The second lease does operate as a revocation, but the condition attached to the power does not vanish: the surveyor's opinion is still required. A's belief that the house was misused is not a substitute for it.

A worked example

Ganesh grants a lease of his warehouse at Bhiwandi to Hiten, reserving a power to revoke the lease if Hiten stores inflammable goods there. Ganesh comes to believe that Hiten is storing paint thinner, and without saying anything to Hiten he grants a fresh lease of the same warehouse to Irfan for a premium.

Does the second lease revoke the first? Yes, under section 42, and Ganesh need not have executed a deed of revocation. The grant to Irfan for consideration operates as an exercise of the reserved power.

But the condition survives. The power was exercisable only if inflammable goods were being stored. If Hiten was in fact storing nothing of the kind, the condition on which the power depended has not been satisfied, and the revocation does not stand against him.

If Ganesh had reserved no power at all, section 42 would have nothing to work on. Hiten's lease would continue, and Irfan would take subject to it.

If Ganesh had gifted the warehouse to his brother instead of leasing it to Irfan for a premium, the section would not apply, because it requires a subsequent transfer for consideration.

What it does NOT mean

It does not create a power of revocation. The power must have been reserved by the earlier transfer. The section only says how an existing power may be exercised.

It does not dispense with the conditions on the power. The words "subject to any condition attached to the exercise of the power" keep them alive, as the illustration shows.

It does not revoke more than the power allowed. Revocation is to the extent of the power and no further.

It does not apply to a gratuitous later transfer. Consideration is required.

It does not apply to movable property. The section speaks of immovable property.

Distinctions

Quick revision

• Section 42 applies where a transfer of immovable property reserved a power to revoke.
• A subsequent transfer for consideration of the same property operates as a revocation of the first.
• It operates subject to any condition attached to the exercise of the power.
• It revokes only to the extent of the power.
• The illustration: a lease revocable on a surveyor's opinion; a later lease to C revokes B's lease, but the surveyor's opinion is still required.
• The underlying principle: a power of revocation may be exercised by conduct, and a second transfer for value is unambiguous conduct.

Test yourself

1. What must the first transfer contain for section 42 to apply? A reserved power in the transferor to revoke the transfer. Without it there is nothing for the later transfer to exercise.

2. Must the transferor execute a deed of revocation? No. The subsequent transfer for consideration itself operates as the revocation, which is the whole point of the section.

3. Does the second transfer override a condition attached to the power? No. Section 42 makes the operation subject to any condition attached to the exercise of the power, so a condition such as a surveyor's opinion must still be satisfied.

4. A grants a revocable lease to B and later gifts the property to his nephew. Is B's lease revoked? No. Section 42 requires a subsequent transfer for consideration, and a gift is not one.

5. If the reserved power allowed revocation of only half the property, what does a later transfer of the whole revoke? Only the half covered by the power. The section revokes the former transfer to the extent of the power and no further.

The proviso: the innocent later purchaser

The second paragraph provides that nothing in the section shall impair the right of transferees in good faith for consideration without notice of the existence of the said option.

So if, after acquiring the interest, the transferor sells the property to a fresh purchaser who pays value, acts honestly and knows nothing of the earlier transaction, that purchaser is safe and the first transferee's option is defeated. The section protects a buyer against a misrepresenting seller, not against another innocent buyer.

The relationship with section 6(a)

This is the hardest thing in Module I, and it is examined directly.

The apparent conflict is easy to state. Section 6(a) says the chance of an heir-apparent succeeding to an estate cannot be transferred, and a transfer of a spes successionis is void. Section 43 appears to let exactly such a transfer take effect once the transferor inherits. If a void transfer can be fed, section 6(a) seems to have been repealed by the section that follows it.

The Jumma Masjid, Mercara v. Kodimaniandra Deviah, AIR 1962 SC 847, decided on 11 January 1962 by Venkatarama Aiyyar, Kapur, Hidayatullah and Shah JJ, resolves it.

Facts. Three brothers, Santhappa, Nanjundappa and Basappa, were members of a joint family. Nanjundappa died in 1907 leaving his widow Ammakka, who took the estate as heir; on her death in 1910 the property passed to the reversioners. On 18 November 1920 three men who were grandsons of Nanjundappa's sister sold the disputed properties to Ganapathi for Rs. 2,000, the deed representing that they had become entitled as reversioners on Ammakka's death. In truth, at the date of the sale, what they had was a spes successionis. Ganapathi's successor sued for possession, and the Jumma Masjid claimed the same property through a gift said to have been made in 1932 and a release deed of March 1933.

Held. The transferee was entitled to the benefit of section 43. Where a person transfers property representing that he has a present interest in it when in fact he has only a spes successionis, a transferee who took on the faith of that representation and for consideration may claim under section 43 once the transferor acquires the interest. On the apparent conflict, the Court held that section 6(a) enacts a rule of substantive law while section 43 enacts a rule of estoppel, which is a rule of evidence, and that the two operate in different fields and on different conditions, so there is no ground for reading a conflict between them.

Why it matters here. It gives the student the dividing line, and the line is knowledge.

• Where both parties know they are dealing in a mere chance of succession, they are trading in a spes successionis. Section 6(a) applies, the transfer is void, and section 43 cannot help, because there was no representation and so no estoppel.
• Where the transferee was misled into believing the transferor already had the interest, section 43 applies. The transferee is not buying an expectancy; he thinks he is buying property.

So the two sections never meet. Section 6(a) asks what was transferred; section 43 asks what the transferor said.

A worked example

Jitendra tells Kalpana that a shop at Solapur belongs to him, and sells it to her for Rs. 25 lakh by a registered deed. In fact the shop belongs to his father, and Jitendra has no interest in it at all. Two years later his father dies and Jitendra inherits the shop.

Kalpana's position. All the conditions are met: a representation of authority, immovable property, consideration, and the subsequent acquisition of the interest while the contract subsists. At her option, the transfer operates on the interest Jitendra has acquired, and she may require him to deliver the shop.

She has a choice. The section gives her an option. She may instead rescind and sue for the return of her money with damages, which she might prefer if the shop has fallen in value.

If Kalpana had rescinded the contract a year after the sale, on discovering the truth, the contract would no longer subsist when Jitendra inherited, and the option would not be available.

If Jitendra, on inheriting, had sold the shop to Lalit, who paid full value, acted honestly and knew nothing of the sale to Kalpana, the second paragraph protects Lalit. Kalpana's option is defeated and her remedy lies against Jitendra personally.

Change the facts so that Kalpana knew. Suppose the deed had recited that Jitendra was merely his father's heir-apparent and that Kalpana was buying his chance of inheriting, at a discount. There is no representation and no estoppel. This is a transfer of a spes successionis, void under section 6(a), and Jumma Masjid's reasoning leaves section 43 with nothing to operate on.

What it does NOT mean

It does not validate a transfer of a spes successionis knowingly made. That remains void under section 6(a). What section 43 rescues is a transferee who was misled.

It does not require fraud. The section says "fraudulently or erroneously", so an honest mistake produces the same result.

It is not automatic. The transfer operates at the option of the transferee, who may elect to take the property or to pursue other remedies.

It does not survive rescission. The contract of transfer must subsist when the interest is acquired.

It does not defeat an innocent later purchaser. The second paragraph protects a transferee in good faith for consideration without notice of the option.

It does not apply to a gratuitous transfer. Consideration is required.

It does not apply to movable property. The section is confined to immovable property.

Distinctions

Quick revision

• Section 43: a fraudulent or erroneous representation of authority, a professed transfer for consideration of immovable property, and the transferor's subsequent acquisition of an interest, let the transfer operate on that interest at the transferee's option, while the contract subsists.
• The doctrine's name is a picture: the after-acquired interest feeds the empty grant.
• The second paragraph protects a later transferee in good faith for consideration without notice of the option.
• Section 6(a) and section 43 do not conflict: the first is substantive law, the second a rule of estoppel, and they operate in different fields, per The Jumma Masjid, Mercara v. Kodimaniandra Deviah, AIR 1962 SC 847.
• The dividing line is knowledge: both parties knowingly dealing in a chance means section 6(a) and a void transfer; a misled transferee means section 43.

Test yourself

1. State the conditions of section 43. A fraudulent or erroneous representation by the transferor that he is authorised to transfer certain immovable property; a professed transfer of it for consideration; the transferor's subsequent acquisition of an interest in that property; the contract of transfer still subsisting; and the transferee exercising his option.

2. Must the representation be dishonest? No. The section covers a representation made "fraudulently or erroneously", so an honest mistake is enough.

3. How did the Supreme Court reconcile sections 6(a) and 43? In The Jumma Masjid, Mercara v. Kodimaniandra Deviah, AIR 1962 SC 847, the Court held that section 6(a) enacts a rule of substantive law and section 43 a rule of estoppel, which is a rule of evidence, so the two operate in different fields and on different conditions and there is no conflict.

4. When can a transferee NOT invoke section 43 against a person who sells him a mere chance of inheriting? Where the transferee knew that he was buying only a spes successionis. There is then no representation and no estoppel, and section 6(a) makes the transfer void.

5. A sells B property he does not own, then acquires it, then sells it to C who pays value and knows nothing. Who takes? C. The second paragraph of section 43 preserves the rights of transferees in good faith for consideration without notice of the option, so B's option is defeated and B is left with a personal remedy against A.

6. Is the operation of section 43 automatic on the transferor acquiring the interest? No. The transfer operates at the option of the transferee, who may instead rescind and pursue other remedies.

Three points on its scope.

It applies only to a dwelling-house, not to a shop, a field or a godown.

It applies only where the transferee is not a member of the family. A brother who buys another brother's share is a member and may enter.

It denies joint possession, not the purchase. The transfer itself is perfectly good. The stranger buys a valid share and may sue for partition; what he may not do is move in while the property is still undivided. That is the distinction on which the answer turns.

Sections 45, 46 and 47: dividing money and shares

These three deal with arithmetic and all three are default rules displaced by a contract to the contrary.

Section 45: joint transfer for consideration. Where immovable property is transferred for consideration to two or more persons and the consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, entitled to interests in the property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund.

The principle is that the property follows the money. Where they contribute from separate funds, their shares follow their contributions.

Section 46: transfer by persons having distinct interests. Where immovable property is transferred for consideration by persons having distinct interests in it, the transferors are, in the absence of a contract to the contrary, entitled to share the consideration equally where their interests were of equal value, and proportionately to the value of their respective interests where those were unequal.

Illustration (b) is the clearer of the two: A has a life interest in a village and B and C the reversion; they sell for Rs. 1,000; A's life interest is valued at Rs. 600 and the reversion at Rs. 400; A takes Rs. 600 and B and C take the balance.

Section 47: transfer by co-owners of a share in common property. Where several co-owners transfer a share without specifying from which of their shares it is to come, the transfer takes effect as among the transferors on their shares equally where their shares were equal, and proportionately where unequal.

The Act's illustration: A owns an eight-anna share and B and C four annas each in a village; they transfer a two-anna share to D without saying whose it is; to give effect to the transfer, one anna is taken from A and half an anna from each of B and C.

Notice that sections 46 and 47 are mirror images. Section 46 divides the money the transferors receive; section 47 decides whose share the transferred interest comes out of.

A worked example

Three brothers, Prem, Qadir and Rohan, inherit two properties as co-owners in equal one-third shares: a dwelling-house at Satara where all three families live, and a shop in the market.

Prem sells his one-third of the shop to Sunil, a stranger. Section 44 applies in full. Sunil acquires Prem's right to joint possession of the shop and his right to enforce a partition, subject to any conditions and liabilities affecting the share at that date. If Prem had already mortgaged his share, Sunil takes it mortgaged.

Prem sells his one-third of the dwelling-house to Sunil. The sale is valid and Sunil owns the share. But the house is a dwelling-house of an undivided family and Sunil is not a member of it, so the second paragraph of section 44 denies him joint possession or any common or part enjoyment. His remedy is to sue for partition, and until the house is divided he stays out.

Prem sells that same share to Qadir instead. Qadir is a member of the family, the exception does not apply, and he takes joint possession.

All three sell a one-sixth share of the shop to Tanvi without saying whose share it comes from. Section 47 applies: their shares being equal, the one-sixth is taken from the three equally, one-eighteenth from each.

All three sell the whole shop for Rs. 90 lakh. Their interests being of equal value, section 46 entitles them to share the price equally, Rs. 30 lakh each. Had Prem held a life interest and the others the reversion, the price would have been divided according to the values of those interests.

What it does NOT mean

A co-owner does not need the others' consent to sell his share. He is disposing of his own undivided interest.

He cannot sell a specific piece of the land. Until partition no co-owner owns any particular part.

The dwelling-house rule does not invalidate the sale. It denies the stranger joint possession only, and leaves him his suit for partition.

It does not apply to every family property. Only to a dwelling-house of an undivided family, and only against a transferee who is not a member.

Sections 45, 46 and 47 are defaults. Each yields to a contract to the contrary.

Section 45 does not divide by headcount. It follows the interests in the fund from which the price was paid.

Distinctions

Quick revision

• A co-owner holds an undivided share and may transfer it without the others' consent, but cannot sell a specific part of the property.
• Section 44: the transferee gets the transferor's right to joint possession and to enforce partition, subject to the conditions and liabilities affecting the share at the date of the transfer.
• Second paragraph of section 44: a transferee of a share of a dwelling-house of an undivided family who is not a member of the family gets no joint possession. The sale is still valid, and his remedy is partition.
• Section 45: joint purchasers take interests matching their interests in the common fund that paid the price.
• Section 46: transferors with distinct interests share the price equally or in proportion to the value of their interests.
• Section 47: an unspecified share transferred by several co-owners comes out of their shares equally or proportionately.
• Sections 45, 46 and 47 all yield to a contract to the contrary.

Test yourself

1. Can one co-owner sell his share without the others agreeing? Yes. He owns an undivided share and may transfer it. What he cannot do is transfer a specific portion of the property, because until partition no co-owner owns any particular part.

2. What does the transferee of a co-owner's share acquire under section 44? The transferor's right to joint possession or other common or part enjoyment, and his right to enforce a partition, so far as is necessary to give effect to the transfer, subject to the conditions and liabilities affecting the share at the date of the transfer.

3. A stranger buys one brother's share in a family dwelling-house. Can he move in? No. The second paragraph of section 44 denies joint possession or common or part enjoyment to a transferee of a share of a dwelling-house of an undivided family who is not a member of that family.

4. Is such a sale void? No. It is perfectly valid and the buyer owns the share. Only his right to joint possession is withheld, and he may sue for partition.

5. Would the answer differ if the buyer were the seller's cousin living in the house? Yes. The exception applies only where the transferee is not a member of the family, so a member takes joint possession in the ordinary way.

6. Three co-owners with equal shares sell a six-anna share without saying whose it is. How is it taken? Two annas from each, under section 47, their shares being equal.

7. A has a life interest worth Rs. 600 and B and C the reversion worth Rs. 400. They sell for Rs. 1,000. How is the price divided? A takes Rs. 600 and B and C take Rs. 400 between them, under section 46, their interests being of unequal value and the price being divided proportionately.

Section 49: the transferee's right under an insurance policy

Where immovable property is transferred for consideration, and the property or any part of it is at the date of the transfer insured against loss or damage by fire, the transferee may, in case of such loss or damage and in the absence of a contract to the contrary, require any money which the transferor actually receives under the policy, or so much of it as may be necessary, to be applied in reinstating the property.

Four limits are built into that sentence and each of them is examinable.

The transfer must be for consideration. A donee cannot claim.

The policy must have been in existence at the date of the transfer.

The money must have been actually received by the transferor. The section gives no right to compel him to claim, and none against the insurer.

The remedy is reinstatement, not payment. The transferee cannot demand the cash for himself; he can require it to be applied in rebuilding, and only so much as is necessary.

Section 50: rent paid in good faith to the wrong person

No person is chargeable with any rents or profits of immovable property which he has in good faith paid or delivered to any person of whom he in good faith held the property, notwithstanding that it may afterwards appear that the person he paid had no right to receive them.

The Act's illustration: A lets a field to B at a rent of Rs. 50, and then transfers the field to C. B, having no notice of the transfer, in good faith pays the rent to A. B is not chargeable with the rent so paid.

The section protects the honest payer, and the justification is that he had no way of knowing. A tenant deals with the person who let him in; if ownership changes behind his back and nobody tells him, he cannot be made to pay a second time to the new owner. The new owner's remedy is against the transferor who took money that was no longer his.

Good faith is required twice, and this is worth noticing: he must have paid in good faith and must in good faith have held the property of that person. A tenant who knew of the transfer, or who is fixed with notice, loses the protection.

Section 50 is the natural companion of section 8, which passes rent accruing after a transfer to the transferee, and of section 37, whose proviso protects a person until he has reasonable notice of a severance. All three protect the person who owes money against changes of ownership he was not told about.

A worked example

Umesh owns a bungalow at Kolhapur, insured against fire, and let to a tenant Vikram at Rs. 20,000 a month.

On 3 March Umesh executes a sale deed of the bungalow in favour of Wasim for full value. On 20 March he executes a mortgage of the same bungalow in favour of a bank. Both are registered, the mortgage first.

Priority. Section 48 gives Wasim priority, his right having been created first, and the bank's mortgage is subject to it. The order of registration does not reverse this, because section 47 of the Registration Act 1908 makes a registered document operate from execution. Only a special contract or reservation binding Wasim could have postponed him.

The fire. In April the bungalow is damaged by fire and Umesh, still named in the policy, receives Rs. 8 lakh from the insurer. Wasim bought for consideration, the policy existed at the date of the transfer, and the money has actually been received. Under section 49 he may require it to be applied in reinstating the bungalow, to the extent necessary. He cannot demand that Umesh hand him the cash.

The rent. Vikram, never having been told of the sale, pays the March and April rent to Umesh in good faith. Under section 50 he is not chargeable with it again. Wasim's remedy is against Umesh. Once Vikram is told, or is fixed with notice, he must pay Wasim.

What it does NOT mean

Section 48 is not defeated by earlier registration. Priority runs from the date of the transfer, and section 47 of the Registration Act 1908 makes a registered document operate from execution.

Section 48 does not protect every earlier right against everyone. A merely contractual right may lose to a later transferee for value without notice.

Section 49 does not give the transferee the money. It gives him the right to require it to be applied in reinstating the property, so far as necessary.

Section 49 does not create a claim against the insurer. It operates on money the transferor actually receives.

Section 50 does not protect a tenant who knew. Good faith is required both in the payment and in the holding.

Section 50 does not extinguish the true owner's claim. It moves it: the claim lies against the person who wrongly received the rent.

Distinctions

Quick revision

• Section 48: qui prior est tempore potior est jure. Where rights created at different times over the same immovable property cannot coexist, the later is subject to the earlier, unless a special contract or reservation binds the earlier transferees.
• Priority runs from the date of the transfer, not of registration; section 47 of the Registration Act 1908 makes a registered deed operate from execution.
• Section 49: a transferee for consideration may require insurance money actually received by the transferor for fire loss to be applied in reinstating the property, the policy having existed at the date of the transfer, absent a contract to the contrary.
• Section 50: a person is not chargeable with rents or profits paid in good faith to a person of whom he in good faith held the property, even if that person had no right to receive them. Illustration: B pays A after A has sold to C, without notice, and is not chargeable.

Test yourself

1. State the maxim in section 48 and explain why it is the rule. Qui prior est tempore potior est jure, he who is earlier in time is stronger in law. It follows from the fact that a transferor cannot give what he has already given away, so the later transferee can take only what remained.

2. A executes a sale to B on 1 June and a mortgage to C on 10 June, but C registers first. Who has priority? B. Section 48 fixes priority by the time the rights were created, and section 47 of the Registration Act 1908 makes a registered document operate from execution, so registering first does not gain priority.

3. When can the order of priority be altered? Where there is a special contract or reservation binding the earlier transferees, for example an agreement by the earlier transferee to be postponed.

4. What exactly can a transferee require under section 49? That money the transferor actually receives under a fire policy which existed at the date of the transfer be applied, so far as necessary, in reinstating the property. He cannot claim the money for himself and has no claim against the insurer.

5. A tenant pays rent to his original landlord after the property has been sold, knowing nothing of the sale. Must he pay again? No. Section 50 provides that he is not chargeable with rents paid in good faith to the person of whom he in good faith held the property, and the Act's illustration is that very case.

6. Would the answer change if the tenant had been told about the sale? Yes. The protection depends on good faith both in the payment and in the holding, so a tenant with notice must pay the new owner.

• have the value of the improvement estimated and paid or secured to the transferee; or
• sell his interest in the property to the transferee at the then market value, irrespective of the value of the improvement.

Two points of measurement follow, and both are in the section.

The value of the improvement is its estimated value at the time of the eviction, not what it cost to build. A structure that has depreciated is worth less; one that has appreciated is worth more.

Where the evictor elects to sell, the price is the market value at that time, irrespective of the value of the improvement. In other words the improver does not pay twice: he is not charged for the value his own building added to the land.

Mesne profits: what the evicted holder must give back

Section 51 tells you what the improver receives. The other half of the account is what he pays, and that is mesne profits.

The term is not defined in this Act. It is defined by section 2(12) of the Code of Civil Procedure 1908:

"mesne profits" of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession.

Four elements, and each is examinable.

One, wrongful possession. There are no mesne profits against a person lawfully in possession. It is the wrongfulness that founds the claim.

Two, actually received or receivable with ordinary diligence. The measure is not what the possessor troubled to earn. A person who lets valuable land lie idle is answerable for what a diligent holder would have got from it.

Three, interest on those profits.

Four, the exclusion. Profits due to improvements made by the person in wrongful possession are not included.

That exclusion is why the definition belongs in this chapter. Section 51 gives the bona fide improver the value of his improvement; section 2(12) of the Code stops the true owner from clawing back, as mesne profits, the extra income that improvement produced. The two provisions point the same way: the improver is not to be enriched at the owner's expense, and the owner is not to be enriched at the improver's.

Do not confuse mesne profits with a mesne mortgagee. "Mesne" simply means intermediate. A mesne mortgagee is one with mortgagees both ahead of and behind him, under section 94 of this Act, taught in [Subrogation, and the Abolition of Tacking]. The two expressions share a word and nothing else.

Growing crops

The section adds a separate rule. Where, in the circumstances above, the transferee has planted or sown crops which are growing when he is evicted, he is entitled to those crops and to free ingress and egress to gather and carry them.

This makes sense on its own footing. Crops are the fruit of his labour and, as chapter 10 explained, growing crops are excluded from immovable property by section 3, so they were never part of what the true owner is recovering.

A worked example

Anita buys a plot at Karad from a seller whose title she has checked as carefully as a prudent buyer would, and takes a registered sale deed. Believing the plot to be absolutely hers, she spends Rs. 18 lakh building a house on it and plants a crop of sugarcane in the strip behind.

Four years later Bipin establishes that the seller had no title and that the plot has always been his, and he obtains a decree evicting Anita. At the date of eviction the house is valued at Rs. 22 lakh and the bare land at Rs. 30 lakh.

Anita's claim. She was a transferee, she made an improvement, and she believed in good faith that she was absolutely entitled. Section 51 applies.

Bipin must choose.

If he elects to keep the land, he must have the value of the improvement estimated and pay or secure it to Anita. That is its value at the time of the eviction, Rs. 22 lakh, and not the Rs. 18 lakh she spent.

If he elects to sell, he must sell his interest to Anita at the market value at that time irrespective of the value of the improvement, that is at Rs. 30 lakh for the land, and Anita is not asked to pay for her own house.

The sugarcane is hers. She is entitled to the growing crops and to free ingress and egress to gather and carry them away.

Change the facts. Suppose Anita had been told before she built that Bipin claimed the plot, and had built anyway. She no longer believed in good faith that she was absolutely entitled, section 51 does not apply, and she loses the house.

Change them again. Suppose Anita had been a lessee who built on the land. A lessee knows he holds a limited interest and cannot believe himself absolutely entitled, so the section does not apply to him.

What it does NOT mean

The improver does not choose. The option belongs to the person causing the eviction. This is the single most common error on this section.

It does not protect a trespasser. The claimant must be a transferee.

It does not protect a person who knew his title was doubtful. Good faith and a belief in absolute entitlement are required.

It does not apply to a lessee or a mortgagee. Neither can believe himself absolutely entitled.

Compensation is not the cost of the work. It is the estimated value of the improvement at the time of eviction.

The improver is not charged for his own improvement. Where the evictor elects to sell, the price is the market value irrespective of the value of the improvement.

It does not give a right to stay. The eviction stands; the section adjusts the money.

Distinctions

Quick revision

• Section 51 rests on unjust enrichment: the owner recovers his land but may not keep the improvement for nothing.
• Conditions: a transferee of immovable property; an improvement; a good faith belief in absolute entitlement; eviction by a person with a better title.
• The evictor chooses: pay or secure the estimated value of the improvement, or sell his interest at the then market value irrespective of the value of the improvement.
• Compensation is the value at the time of the eviction, not the cost incurred.
• Growing crops belong to the improver, with free ingress and egress to gather them.
• A trespasser, a lessee and a mortgagee are all outside the section.

Test yourself

1. Who has the option under section 51? The person causing the eviction. He must either have the value of the improvement estimated and paid or secured to the transferee, or sell his interest in the property to the transferee at the then market value.

2. How is the compensation measured? By the estimated value of the improvement at the time of the eviction, not by what the improver spent.

3. If the evictor elects to sell, is the improver charged for the improvement he made? No. The section requires the sale to be at the then market value of the evictor's interest, irrespective of the value of the improvement.

4. Does section 51 protect a trespasser who builds on land in the honest belief that it is his? No. The section applies to a transferee of immovable property. A person who took under no transfer is outside it.

5. Can a lessee who builds on the leased land claim under section 51? No. The section requires a belief in good faith that he is absolutely entitled, and a lessee knows his interest is limited.

6. What happens to crops the improver has sown which are standing at the eviction? He is entitled to them, and to free ingress and egress to gather and carry them away.

Six, unless made under the authority of the court, which may permit the transfer on such terms as it imposes.

The Explanation: when pendency begins and ends

This is the part most often misstated, and the Act is precise.

The pendency of a suit or proceeding is deemed to commence from the date of the presentation of the plaint or the institution of the proceeding in a court of competent jurisdiction, and to continue until the suit or proceeding has been disposed of by a final decree or order and complete satisfaction or discharge of such decree or order has been obtained, or has become unobtainable by reason of the expiration of any period of limitation prescribed for its execution.

Three things follow, and each is worth a separate line in an answer.

It begins at presentation of the plaint, not at service of summons on the defendant and not at the first hearing. So a defendant who sells the day after the plaint is filed, before he has heard anything about the case, is still caught.

It does not end with the decree. It continues until the decree has been completely satisfied or discharged, which means through the execution stage. A judgment-debtor cannot defeat the decree by selling the property while execution is pending.

It also ends where satisfaction has become unobtainable because the period of limitation for executing the decree has run out.

The effect: the transfer is valid but subordinate

The section does not say the transfer is void. It says the property cannot be dealt with so as to affect the rights of any other party under the decree.

So the transfer is good between the transferor and the transferee. It passes whatever the transferor had. What it cannot do is prejudice the other party to the suit. The buyer takes subject to the result of the litigation: if the seller wins, the buyer keeps the property; if the seller loses, the buyer's title falls with his seller's, and he is bound by the decree although he was never a party to the case.

The practical position of the buyer is therefore that he has bought a lawsuit. His remedy, if the seller loses, is against the seller on the covenants for title, not against the successful plaintiff.

Notice is irrelevant

This is the sharpest contrast with the rest of Module I. Sections 39, 40 and 41 all turn on the transferee's notice. Section 52 does not.

A purchaser who searched every register, asked every question and could not have discovered the suit is bound just as much as one who knew. The reason follows from the purpose of the rule: it exists to preserve the court's power over the subject matter, not to punish a buyer for carelessness. If notice mattered, a defendant could defeat every decree by selling to someone genuinely ignorant.

A worked example

Chetan sues Dilip in the Bombay City Civil Court, presenting the plaint on 4 January, claiming a declaration that a flat at Ghatkopar registered in Dilip's name is really Chetan's and asking for possession. A right to immovable property is directly and specifically in question and the suit is genuine.

On 9 January, before the summons has even been served on him, Dilip sells the flat to Esha for full value. Esha searches the sub-registrar's records, finds nothing about the suit, and knows nothing of it.

Is the sale void? No. It is valid as between Dilip and Esha and passes what Dilip had.

Is Esha protected by her ignorance? No. Section 52 does not turn on notice, and the pendency began on 4 January when the plaint was presented, five days before her purchase.

The suit is decided in Chetan's favour in 2029. Esha is bound by the decree although she was not a party. She must give up the flat, and her remedy is against Dilip for the price and damages.

If Dilip had won, Esha would have kept the flat, because she takes subject to the result and the result was in her seller's favour.

If Dilip had applied to the court before selling and obtained its authority on such terms as it imposed, the sale would have been outside the section.

Now suppose the decree is passed in Chetan's favour and Dilip sells during execution. He is still caught. The Explanation continues the pendency until complete satisfaction or discharge of the decree, or until execution becomes time-barred.

Change the suit. Suppose Chetan had sued Dilip for a money debt of Rs. 40 lakh and Dilip had sold the flat to pay other creditors. No right to immovable property is directly and specifically in question in that suit, so section 52 does not apply, and Chetan's remedy, if any, is under section 53.

What it does NOT mean

The transfer is not void. It is valid between the parties to it and merely subordinate to the decree.

Notice is irrelevant. A bona fide purchaser for value without notice is bound.

It does not apply to a collusive suit. The section excludes one in terms.

It does not apply where the property is only incidentally involved. The right to immovable property must be directly and specifically in question.

It does not begin with service of summons. The Explanation fixes commencement at the presentation of the plaint.

It does not end with the decree. It runs until complete satisfaction or discharge, or until execution becomes time-barred.

It does not bind a stranger's transfer. Only a party to the suit is caught.

The court can permit a transfer, on its own terms.

Distinctions

Quick revision

• Lis pendens, pending suit. The maxim is pendente lite nihil innovetur.
• Conditions: a pending, non-collusive suit or proceeding; in a competent court; in which a right to immovable property is directly and specifically in question; a transfer by a party; which would affect the other party's rights under the decree; without the court's authority.
• Effect: the transfer is not void. It is valid but subject to the decree, and the buyer is bound by it though not a party.
• Notice is irrelevant. A purchaser for value without notice is bound.
• Explanation: pendency begins at the presentation of the plaint and continues until the decree is completely satisfied or discharged, or execution becomes time-barred.
• The court may authorise a transfer on such terms as it imposes.
• The buyer's remedy is against his seller, not against the successful party.

Test yourself

1. Does section 52 make a transfer during a pending suit void? No. The transfer is valid between transferor and transferee. It simply cannot affect the rights of any other party to the suit under the decree, so the transferee takes subject to the result.

2. When does the pendency begin and end? It begins on the date the plaint is presented, or the proceeding is instituted, in a court of competent jurisdiction. It continues until the suit is disposed of by a final decree or order and complete satisfaction or discharge of that decree has been obtained, or has become unobtainable because the period for executing it has expired.

3. A buyer searches every record, finds no trace of the suit and buys in complete good faith. Is he bound? Yes. Section 52 does not depend on notice. The rule exists to keep the subject matter of the suit within the court's control, and it would fail if an innocent purchase defeated it.

4. Does the section apply to a suit for recovery of a money debt? No, unless a right to immovable property is directly and specifically in question in that suit. A money suit does not attract section 52.

5. Can a party to the suit ever transfer the property lawfully? Yes, under the authority of the court and on such terms as the court imposes.

6. Why is a collusive suit excluded? Because the section is there to protect a genuine adjudication. If a sham suit attracted it, parties could freeze property by arrangement, which is the opposite of the section's purpose.

7. What is the position of a purchaser whose seller loses the suit? He is bound by the decree although he was not a party, and must give up the property. His remedy lies against his seller, not against the successful party.

The representative suit requirement. A suit by a creditor to avoid a transfer on this ground must be instituted on behalf of, or for the benefit of, all the creditors. The section adds that "creditor" includes a decree-holder, whether or not he has applied for execution.

That requirement is not a technicality and it deserves a sentence in an answer. Its purpose is to prevent a race. If each creditor could sue alone and take the recovered property for himself, the quickest creditor would be paid in full and the rest would get nothing, when the whole point of avoiding the transfer is to restore the property to the general fund available to all.

Section 53(2): defrauding a subsequent transferee

The rule. Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee is voidable at the option of that transferee.

This protects a different person from a different mischief. A man makes a gift of his land, keeps the transaction quiet, and then sells the same land to a buyer who knows nothing of the gift. The buyer would find that his seller had nothing left to sell. Sub-section (2) lets that buyer avoid the earlier gift.

Two limits are built in.

It applies only to a transfer made without consideration. An earlier transfer for value is untouched by this sub-section, and priority between two transfers for value is settled by section 48.

No presumption of fraud from the mere fact of a later sale. The sub-section provides expressly that no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made. So a man who gifts his land to his daughter and sells other land later has not, by that fact alone, defrauded anybody. Intent must be proved.

How intention is proved

Intention is rarely admitted, so it is inferred from circumstances. The kinds of facts that point to it, and which an answer can list, are:

• the transfer was made when a suit or a decree was pending or imminent;
• it covered substantially the whole of the debtor's property;
• the consideration was absent, nominal or never actually paid;
• the transferor remained in possession and continued to enjoy the property;
• the transferee was a close relative or someone otherwise connected;
• the transaction was carried out with unusual haste or secrecy.

None of these is conclusive by itself. Taken together they are what a court weighs, and the presence of several is what turns suspicion into an inference.

A worked example

Farhan owes Rs. 60 lakh to a bank, which has filed a suit and is close to a decree. Farhan owns a plot at Wai worth Rs. 70 lakh, which is nearly all he has.

Version one. A month before the decree, Farhan gifts the plot to his brother Gaurav and continues to live on it. The transfer is of substantially all his property, for no consideration, to a close relative, on the eve of a decree, and he stays in possession. The inference of an intent to defeat or delay the bank is strong. The transfer is voidable at the bank's option under section 53(1). If the bank sues, it must do so on behalf of, or for the benefit of, all Farhan's creditors.

Version two. Farhan sells the plot to Hemant, a stranger, at its full market value of Rs. 70 lakh, the price being actually paid, and Hemant knows nothing of the bank's suit. Even if Farhan's own motive was to convert the land into money he could hide, Hemant is a transferee in good faith and for consideration and the saving protects him. The bank's remedy is against the sale proceeds in Farhan's hands, not against Hemant.

Version three. Farhan sells to his nephew for Rs. 5 lakh, a fraction of the value, the nephew knowing about the bank suit. There is consideration, but it is nominal and there is no good faith. The saving does not apply and the transfer is voidable.

Version four. Farhan gifts the plot to Gaurav in January and in March sells the same plot to Ishita for full value, saying nothing about the gift. Ishita may avoid the gift under section 53(2), the gift being without consideration and made with intent to defraud a subsequent transferee. But if all that can be shown is that a later sale happened, that alone does not prove the intent, because the sub-section says so in terms.

Nobody complains. If neither the bank nor any creditor ever moves, the gift to Gaurav stands. It is voidable, not void.

What it does NOT mean

The transfer is not void. It is voidable at the option of the person the section protects.

The transferor cannot avoid his own transfer. The option belongs to the defeated creditor, or to the defrauded subsequent transferee.

It does not prevent a debtor from dealing with his property. He may sell for value, and may prefer one creditor over another, so long as the object is not to defeat or delay creditors generally.

"Delay" is not a lesser case. A transfer that merely postpones the creditors is within the sub-section.

A good faith purchaser for value is safe under sub-section (1), whatever his seller intended.

Section 53(2) does not presume fraud. A later transfer for consideration does not, by itself, make an earlier gift fraudulent.

A single creditor cannot sue for himself alone. The suit must be on behalf of, or for the benefit of, all the creditors.

It does not displace insolvency law, which is expressly saved.

Distinctions

Quick revision

• Section 53(1): a transfer of immovable property with intent to defeat or delay creditors is voidable at the option of any creditor so defeated or delayed.
• Voidable, not void. It stands unless a creditor avoids it, and the transferor cannot avoid his own transfer.
• Saved: a transferee in good faith and for consideration; and any law relating to insolvency.
• The suit must be brought on behalf of, or for the benefit of, all the creditors; "creditor" includes a decree-holder.
• Section 53(2): a transfer without consideration made with intent to defraud a subsequent transferee is voidable at that transferee's option.
• No presumption: a later transfer for consideration does not by itself make the earlier gratuitous transfer fraudulent.
• Badges of intent: an imminent suit or decree; substantially all the property; no or nominal consideration; the transferor remaining in possession; a close relative; haste and secrecy.

Test yourself

1. Is a transfer under section 53(1) void or voidable, and at whose option? Voidable, at the option of any creditor defeated or delayed by it. It remains effective unless and until such a creditor avoids it.

2. Can the transferor himself get his transfer set aside under section 53? No. The sub-section protects the creditors, and the option to avoid belongs to them, not to the person who made the transfer.

3. A debtor sells his land at full market value to a stranger who knows nothing of his debts. Can the creditors avoid the sale? No. Section 53(1) expressly preserves the rights of a transferee in good faith and for consideration, and both elements are present.

4. Why must a creditor's suit be brought on behalf of all the creditors? To prevent a race in which the first creditor to sue takes the recovered property for himself. Avoiding the transfer is meant to restore the property to the fund available to all the creditors.

5. What must a subsequent transferee prove under section 53(2)? That the earlier transfer was made without consideration and with intent to defraud him. The sub-section adds that no such transfer is deemed to have been made with that intent by reason only that a subsequent transfer for consideration was made.

6. Name four circumstances from which an intent to defeat creditors may be inferred. That the transfer was made when a suit or decree was pending or imminent; that it covered substantially the whole of the debtor's property; that the consideration was absent, nominal or unpaid; and that the transferor remained in possession, or that the transferee was a close relative.

7. Is "delay" enough, or must the creditors be permanently defeated? Delay is enough. The sub-section applies to a transfer made with intent to defeat or delay the creditors.

Four, the transferee has done some act in furtherance of the contract. Paying part of the price, spending money on improvements, or taking over the seller's obligations will do.

Five, the transferee has performed or is willing to perform his part of the contract. This is the condition that decides most cases, and it is dealt with next.

Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi, (2002) 3 SCC 676, decided on 22 January 2002 by Khare and Bhan JJ, sets the conditions out and settles a second question with them.

Facts. By an agreement of July 1964 the respondent agreed to sell agricultural land to the appellant for Rs. 9,000. The appellant paid Rs. 5,700 as earnest money and was put in possession. When the transferor moved to sell the land elsewhere the appellant obtained an injunction in August 1965. In spite of it the transferor executed a registered deed in May 1966 in favour of another person, who then sued for possession. By then a suit by the appellant for specific performance of the 1964 agreement would have been barred by limitation.

Held. The transferee could still defend his possession under section 53A. Limitation bars the remedy, not the defence: the expiry of the period for a suit for specific performance does not take away the protection the section gives to a transferee already in possession, because the section confers a shield and not a right of action. The Court set out the conditions of the section as summarised above.

Why it matters here. It is the answer to the standard problem in which the agreement is old and the buyer has been in possession for years. A student who says the buyer is out of time has confused the right to sue with the right to resist.

The fifth condition: willingness to perform

Nathulal v. Phoolchand, AIR 1970 SC 546, decided on 16 October 1969 by Shah and Hegde JJ, is the case on what willingness means.

Facts. Nathulal owned a ginning factory standing on agricultural land which stood in the revenue records in the name of his brother Chittarmal. By an agreement of 26 February 1951 he agreed to sell it to Phoolchand for Rs. 43,011. Phoolchand paid Rs. 22,011 and was put in possession, the balance of Rs. 21,000 to be paid by 7 May 1951. Nathulal was to get his brother's name removed from the revenue records and his own entered. When the balance was not paid by the due date Nathulal treated the contract as rescinded and sued in 1954 for possession, calling Phoolchand a trespasser.

Held. The defence of part performance succeeded. In considering whether a person is willing to perform his part, the sequence in which the obligations under the contract are to be performed must be taken into account: where obligations are to be performed in a sequence, one party cannot demand performance by the other without first performing what falls to him earlier in that sequence. A transferee need not produce the cash; readiness shown by an arrangement to pay is enough.

Why it matters here. Willingness is not tested against the calendar in the abstract. It is tested against the order the contract itself sets, so a buyer is not unwilling merely because money did not change hands on the day named, where the seller had an earlier obligation he had not met.

The effect: a shield, never a sword

The section says the transferor and those claiming under him shall be debarred from enforcing against the transferee any right in respect of the property of which he has taken or continued in possession, other than a right expressly provided by the terms of the contract.

Three consequences follow.

It gives no title. Ownership stays with the transferor until a registered deed is executed.

It cannot found a suit. The transferee cannot sue on section 53A to recover possession or to obtain a declaration of title. He raises it when he is sued.

It protects only the possession he holds under the contract, and it does not touch a right the contract itself expressly gave the transferor.

Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656, decided on 11 October 2011 by Raveendran, Patnaik and Gokhale JJ, is the modern statement.

Facts. The Court examined the practice, widespread in and around Delhi, of transferring immovable property without a registered conveyance: the seller would deliver possession and execute an agreement of sale, a general power of attorney and a will in the buyer's favour, a package the Court called an SA/GPA/WILL transfer. The purpose was to escape stamp duty, registration fees and capital gains tax, and to place undisclosed money in property.

Held. Immovable property can be legally and lawfully transferred or conveyed only by a registered deed of conveyance. An agreement of sale, a power of attorney and a will, singly or together, do not convey title and do not amount to a transfer, nor can they be recognised as a valid mode of transfer. As to section 53A, the Court held that it gives the proposed transferee a limited protection: it disentitles the transferor from disturbing the possession he has given, but it has nothing to do with ownership, which stays with the vendor until a registered deed of sale is executed.

Why it matters here. It is the clearest available statement that possession and title are different things, and it warns a student against the common belief that long possession under an agreement of sale ripens into ownership. It does not.

The proviso: the innocent later purchaser

Nothing in the section affects the rights of a transferee for consideration who has no notice of the contract or of the part performance of it.

So a later purchaser who paid value and knew nothing takes free of the section 53A defence. In practice this is a narrow escape, because the transferee protected by section 53A is by definition in possession, and Explanation II to section 3, taught in [The Interpretation Clause: Attestation, Notice and the Words the Act Runs On], deems a person acquiring immovable property to have notice of the title of anyone in actual possession. A buyer who inspects the property will see him; a buyer who does not is fixed with notice anyway.

The 2001 amendment, and why every other set of notes is wrong

This is the most important thing in the chapter and it is a change in the law that most free material has not caught up with.

As originally enacted, section 53A protected the transferee "notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed". So an unregistered agreement to sell was a perfectly good foundation for the defence.

The Registration and Other Related Laws (Amendment) Act 2001 (48 of 2001) omitted those words. India Code's consolidated text now prints the passage as "then, notwithstanding that", followed by a footnote marker and three asterisks standing for the omitted words, and then "or, where there is an instrument of transfer, that the transfer has not been completed". The asterisks are the Act's own way of showing that something has been taken out, and the footnote names the amending Act.

The same Act inserted section 17(1A) into the Registration Act 1908, which provides that documents containing contracts to transfer for consideration any immovable property for the purpose of section 53A shall be registered if they have been executed on or after the commencement of that Act, and that if such documents are not registered, they shall have no effect for the purposes of section 53A.

The two changes are one reform and must be read together. The result, for any agreement executed on or after the commencement of the 2001 Act, is this:

An unregistered agreement to sell no longer supports a defence of part performance. The document must be registered. Before the amendment it did not have to be.

That is why this chapter is placed last in Module I and cross-linked to [Documents of Which Registration Is Compulsory] in Module IV. It is also why a student must be careful with older textbooks, older question papers and the many online notes that still recite the pre-2001 text. The doctrine survives; its foundation now has to be registered.

A worked example

In 2019 Jyoti agrees in writing, signed by her, to sell her flat at Vashi to Karan for Rs. 80 lakh. Karan pays Rs. 60 lakh, is put in possession, and spends Rs. 6 lakh on renovation. The balance is to be paid when Jyoti produces a no-objection certificate from the society, which she never does. The agreement is registered.

In 2026 Jyoti sues Karan for possession, calling him a trespasser because no sale deed was executed.

Work through the conditions. There is a written contract for consideration signed by her; its terms are certain; Karan took possession in part performance; he has done acts in furtherance, paying most of the price and renovating; and he is willing to perform. On Nathulal v. Phoolchand, AIR 1970 SC 546, his willingness is judged against the sequence of obligations, and the outstanding step was hers. Section 53A debars her from enforcing possession against him.

Suppose a suit by Karan for specific performance would now be time-barred. It makes no difference to the defence. On Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi, (2002) 3 SCC 676, limitation bars the remedy and not the shield.

Does Karan own the flat? No. On Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656, title passes only by a registered deed of conveyance, and section 53A has nothing to do with ownership. He can stay; he cannot claim to be owner, and he cannot give a good title to anyone else.

Now change one fact: the agreement was never registered. It was executed in 2019, after the 2001 Act. By section 17(1A) of the Registration Act 1908 an unregistered document of this kind has no effect for the purposes of section 53A. Karan's defence fails on that ground alone, however completely he has performed. This single fact reverses the entire answer, and it is the fact that older notes will not tell a student to look for.

Change another: Jyoti sold the flat in 2021 to Meera for full value. Meera would take free only if she had no notice of the contract or of the part performance. Karan was living in the flat, so Explanation II to section 3 fixes her with notice, and the proviso does not save her.

What it does NOT mean

It does not transfer title. Ownership remains with the transferor until a registered conveyance is executed.

It is a defence, not a cause of action. The transferee cannot sue upon it.

There is no oral part performance in India. A signed writing is a condition.

Continuing in possession is not enough by itself where the transferee was already in possession. He must also do some act in furtherance of the contract.

Willingness is not tested in the abstract. It is measured against the sequence of obligations the contract sets.

Limitation on a specific performance suit does not destroy the defence.

And, since 2001, an unregistered agreement will not do. Section 17(1A) of the Registration Act 1908 deprives an unregistered document of any effect for the purposes of section 53A.

Distinctions

Quick revision

• Five conditions: a written, signed contract to transfer immovable property for consideration; terms ascertainable with reasonable certainty; possession taken or continued in part performance; some act in furtherance; and the transferee has performed or is willing to perform.
• Effect: the transferor and those claiming under him are debarred from enforcing rights against the transferee's possession, except a right expressly given by the contract.
• It is a shield, never a sword, and it passes no title.
• Nathulal v. Phoolchand, AIR 1970 SC 546: willingness is judged against the sequence of obligations.
• Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi, (2002) 3 SCC 676: limitation bars the remedy, not the defence.
• Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656: only a registered deed conveys title; section 53A has nothing to do with ownership.
• Proviso: a transferee for consideration without notice of the contract or the part performance is unaffected; but Explanation II to section 3 usually fixes him with notice, because the protected transferee is in possession.
• The 2001 amendment: Act 48 of 2001 omitted the words about an unregistered contract from section 53A and inserted section 17(1A) into the Registration Act 1908. An unregistered agreement executed on or after that Act has no effect for the purposes of section 53A.

Test yourself

1. State the conditions for section 53A. A contract to transfer immovable property for consideration, in writing signed by the transferor or on his behalf, from which the necessary terms can be ascertained with reasonable certainty; the transferee having taken possession, or continued in possession and done some act in furtherance of the contract, in part performance; some act done in furtherance of the contract; and the transferee having performed or being willing to perform his part.

2. Does section 53A give the transferee ownership? No. It debars the transferor from enforcing rights against his possession. Title passes only by a registered deed of conveyance, as held in Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656.

3. Can a transferee sue to recover possession relying on section 53A? No. It is a shield and not a sword, and may be raised only in defence.

4. A buyer in possession under an agreement of 1990 is sued for possession in 2010, a specific performance suit being long time-barred. Can he defend? Yes. In Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi, (2002) 3 SCC 676, the Supreme Court held that limitation bars the remedy and not the defence, so the protection of section 53A survives.

5. How is "willingness to perform" judged? Against the sequence in which the contract requires the obligations to be performed. On Nathulal v. Phoolchand, AIR 1970 SC 546, a party cannot demand performance by the other without first performing what falls to him earlier in the sequence, and readiness through an arrangement to pay is enough without producing cash.

6. What did the 2001 amendment change? The Registration and Other Related Laws (Amendment) Act 2001 omitted from section 53A the words protecting a transferee notwithstanding that a contract required to be registered had not been registered, and inserted section 17(1A) into the Registration Act 1908. A document of that kind executed on or after that Act must be registered, and if it is not, it has no effect for the purposes of section 53A.

7. A buyer in possession under an unregistered agreement of sale executed in 2020 is sued for possession. Advise him. The defence under section 53A is not available. By section 17(1A) of the Registration Act 1908 the unregistered document has no effect for the purposes of section 53A, and the agreement was executed well after the 2001 Act. However completely he has performed, he cannot rely on the section, and his remedies lie elsewhere in contract.

8. When does the proviso protect a later purchaser? Where he is a transferee for consideration with no notice of the contract or of the part performance. In practice it rarely helps, because the protected transferee is in possession and Explanation II to section 3 deems a person acquiring the property to have notice of the title of anyone in actual possession.

Three, what delivery means. The section defines it: delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Two terms need defining. Tangible property is property that can be physically possessed, such as land or a house. A reversion is the interest left in a person who has granted away a smaller interest, for example a landlord's interest during a lease; it is intangible because there is nothing to hand over, and that is why it needs a registered instrument whatever it is worth.

The hundred-rupee figure is the Act's own and has never been raised, so in practice every sale of immovable property a student will meet requires a registered instrument.

"Contract for sale": the sentence that decides cases

Section 54 closes with two lines that carry more weight than anything else in it:

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.

An agreement to sell is therefore a promise about the future. It binds the parties in contract, and it can be enforced by a suit for specific performance, but it moves nothing. The buyer under an agreement to sell owns no part of the property, however much he has paid and however long he has been in possession.

Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656, decided on 11 October 2011 by Raveendran, Patnaik and Gokhale JJ, is the modern authority.

Facts. The Court examined the practice, widespread in and around Delhi, of transferring immovable property without a registered conveyance: the seller would deliver possession and execute an agreement of sale, a general power of attorney and a will in the buyer's favour, a package the Court called an SA/GPA/WILL transfer. The purpose was to escape stamp duty, registration fees and capital gains tax, and to place undisclosed money in property.

Held. Immovable property can be legally and lawfully transferred or conveyed only by a registered deed of conveyance. An agreement of sale, a power of attorney and a will, singly or together, do not convey title and do not amount to a transfer, nor can they be recognised as a valid mode of transfer. As to section 53A, the Court held that it gives the proposed transferee a limited protection: it disentitles the transferor from disturbing the possession he has given, but it has nothing to do with ownership, which stays with the vendor until a registered deed of sale is executed.

Why it matters here. It is the direct application of the last line of section 54, and it tells a student what to say when a problem describes a buyer who paid, took possession and holds a power of attorney. He is protected in his possession by section 53A if its conditions are met, and he is not the owner.

A worked example

Nilesh agrees in writing to sell his shop at Ulhasnagar to Preeti for Rs. 40 lakh. She pays Rs. 35 lakh, is given the keys and starts trading from it. The agreement is registered. No sale deed is ever executed.

Who owns the shop? Nilesh. A contract for sale does not of itself create any interest in or charge on the property, and section 54 permits a transfer of ownership only by a registered instrument of sale.

What does Preeti have? A contractual right, enforceable by a suit for specific performance, and, the agreement being registered and the other conditions met, the shield in section 53A protecting her possession against Nilesh.

Can Preeti sell the shop to someone else? Not as owner. She has no title to convey. She could assign her rights under the agreement, which is a different and much weaker thing.

Now suppose Nilesh sells the shop by registered deed to Rahul, who knows about Preeti's agreement. Rahul takes the title, because only he has a registered conveyance. But Preeti may enforce her contract against him under section 40, taught in [Restrictive Covenants: When an Obligation Runs with the Land], because he had notice.

Change the property to a hand-cart worth Rs. 60. That is movable property, section 54 does not apply at all, and the Sale of Goods Act 1930 governs.

Change it to a plot worth Rs. 80. Tangible immovable property under a hundred rupees, so it may be transferred either by a registered instrument or by delivery of possession. This is now almost theoretical.

What it does NOT mean

Price means money. Consideration in the form of other property makes it an exchange under section 118, not a sale.

An agreement to sell is not a sale. It creates no interest in the property, and section 54 says so in terms.

Possession is not ownership. Neither is payment of the price, nor a power of attorney, nor all three together.

Registration is not optional above a hundred rupees. The words are "can be made only by a registered instrument".

A reversion needs a registered instrument whatever it is worth, because it is intangible.

Part payment does not prevent a sale. The price may be paid, promised, or part of each.

Distinctions

Quick revision

• Sale is a transfer of ownership in exchange for a price paid or promised, or part-paid and part-promised.
• Price means money; property for property is an exchange, nothing is a gift.
• How made: tangible immovable property worth Rs. 100 or more, and a reversion or other intangible thing of any value, only by a registered instrument.
• Under Rs. 100: registered instrument or delivery, and delivery means putting the buyer in possession.
• A contract for sale creates no interest in or charge on the property.
• Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656: only a registered deed conveys title; SA, GPA and will together do not.
• Section 4 makes section 54 paragraphs 2 and 3 supplemental to the Registration Act 1908.

Test yourself

1. Define sale and state its essentials. Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. The essentials are competent parties under section 7, transferable property under section 6, transfer of the whole ownership, and a price in money.

2. How must a sale of a flat worth Rs. 50 lakh be made? Only by a registered instrument. Section 54 permits no other mode for tangible immovable property of one hundred rupees and upwards.

3. If consideration is a plot of land rather than money, what is the transaction? An exchange under section 118, not a sale, because a sale requires a price, and price means money.

4. Does an agreement to sell give the buyer an interest in the property? No. Section 54 provides that a contract for sale does not of itself create any interest in or charge on the property. It is enforceable in contract only.

5. A buyer has paid the full price, holds possession and a general power of attorney. Is he the owner? No. On Suraj Lamp and Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656, immovable property can be conveyed only by a registered deed, and an agreement of sale, a power of attorney and a will do not convey title singly or together. He may have the section 53A shield for his possession.

6. Why must a reversion be sold by a registered instrument even if it is worth Rs. 20? Because section 54 requires a registered instrument for a reversion or other intangible thing without reference to value. The hundred-rupee threshold applies only to tangible immovable property.

(e) To take care in the meanwhile. Between the date of the contract of sale and the delivery of the property, to take as much care of the property and the title documents in his possession as an owner of ordinary prudence would take.

(f) To give possession. To give the buyer, or such person as he directs, such possession of the property as its nature admits, on being required to do so.

(g) To clear the outgoings. To pay all public charges and rent accrued due up to the date of the sale, the interest on all incumbrances due on that date, and, except where the property is sold subject to incumbrances, to discharge all incumbrances then existing.

An incumbrance is a burden on the property such as a mortgage or a charge. The exception matters: property is often sold expressly subject to a mortgage, and then the buyer takes it with the burden and the price reflects that.

Rule (2): the covenant for title

The seller is deemed to contract with the buyer that the interest which he professes to transfer subsists, and that he has power to transfer it.

This is the statutory covenant for title, and it is implied whether or not the deed says anything. If the seller had no title, or a smaller one than he professed, he is in breach and the buyer may sue for damages.

The fiduciary proviso. Where the sale is made by a person in a fiduciary character, meaning one who holds the property for someone else, such as a trustee, an executor or a guardian, the covenant is narrowed: he is deemed to contract only that he has done no act whereby the property is incumbered or whereby he is hindered from transferring it.

That narrower covenant is fair. A trustee did not choose the property and may know nothing of its earlier history; all he can honestly promise is that he has done nothing to spoil it.

The benefit runs with the land. The section provides that the benefit of this contract is annexed to, and goes with, the interest of the transferee, and may be enforced by every person in whom that interest is from time to time vested. So a later buyer, several transfers down the line, can sue the original seller on it.

Rule (3): delivery of the title deeds

Where the whole of the purchase money has been paid, the seller is bound to deliver to the buyer all documents of title in his possession or power. Two provisos qualify it:

(a) Where the seller retains part of the property comprised in those documents, he is entitled to retain them all.

(b) Where the whole property is sold to different buyers, the buyer of the lot of greatest value is entitled to the documents.

In case (a) the seller, and in case (b) the buyer of the greatest lot, must on every reasonable request, and at the cost of the person requesting, produce the documents and furnish true copies or extracts, and must in the meantime keep them safe, uncancelled and undefaced, unless prevented by fire or other inevitable accident.

Rule (4): what the seller is entitled to

(a) The rents and profits of the property till the ownership passes to the buyer.

(b) The charge for unpaid purchase money. Where the ownership has passed to the buyer before payment of the whole of the price, the seller has a charge upon the property in the hands of the buyer, and in the hands of any transferee without consideration or any transferee with notice of the non-payment, for the unpaid purchase money and interest on it from the date on which possession has been delivered.

This is the vendor's lien, and it is one of the most examined things in the section. It is a statutory charge, so the seller does not need a mortgage: if the buyer does not pay, the seller can enforce the charge against the property itself. Note carefully who it binds: the buyer, a gratuitous transferee, and a transferee with notice. A purchaser for value without notice takes free.

Rule (5): what the buyer is bound to do

(a) To disclose a fact increasing the value. To disclose to the seller any fact as to the nature or extent of the seller's interest of which the buyer is aware but which he has reason to believe the seller is not, and which materially increases the value of that interest.

This is the mirror of rule (1)(a) and it surprises students. A buyer who has discovered that the land holds a mineral deposit the seller does not know about must say so. The duty is confined to facts about the seller's interest, not about the buyer's own plans or the state of the market.

(b) To pay the price at the time and place of completing the sale. Proviso: where the property is sold free from incumbrances, the buyer may retain out of the purchase money the amount of any incumbrances existing at the date of the sale, and must pay that amount to the persons entitled.

(c) To bear loss after ownership passes. Where the ownership has passed, to bear any loss from destruction, injury or decrease in value not caused by the seller. Risk follows ownership, not possession.

(d) To pay the outgoings after ownership passes. As between himself and the seller, the public charges and rent becoming payable afterwards, the principal moneys due on incumbrances subject to which the property was sold, and the interest afterwards accruing.

Rule (6): what the buyer is entitled to

(a) The benefit of improvement. Where the ownership has passed to him, to the benefit of any improvement in, or increase in value of, the property, and to the rents and profits. This is the counterpart of rule (5)(c): the buyer takes the gains because he bears the losses.

(b) The charge for prepaid purchase money. Unless he has improperly declined to accept delivery, a charge on the property, as against the seller and all persons claiming under him, to the extent of the seller's interest, for any purchase money properly paid in anticipation of delivery and interest on it; and where he properly declines delivery, also for the earnest and for the costs of a suit to compel specific performance or to obtain rescission.

This is the buyer's lien, the exact mirror of the seller's charge in rule (4)(b). A buyer who has paid an advance and cannot get the property is not left chasing an empty seller; he holds a charge on the land itself.

The closing sentence

The section ends: an omission to make the disclosures mentioned in paragraph (1) clause (a) and paragraph (5) clause (a) is fraudulent.

This is not a flourish. Labelling those two omissions fraudulent means the transaction can be attacked for fraud under the Contract Act 1872, with all that follows, rather than merely giving rise to damages for breach of a statutory duty.

A worked example

Suresh sells his godown at Kalamboli to Tanuja for Rs. 90 lakh by registered deed. The deed says nothing beyond the parties, the property and the price. These facts are true.

• The godown has a subsided foundation on one side, hidden under a floor Suresh laid last year. He knows; she cannot see it.
• There is a subsisting mortgage of Rs. 12 lakh in favour of a bank. The deed does not say the sale is subject to it.
• Tanuja has learnt from a friend in the planning office that a metro station is to be built next door, which trebles the value. Suresh does not know.
• Tanuja pays Rs. 70 lakh and takes possession; Rs. 20 lakh remains unpaid.
• Two months later a fire damages the roof, nobody's fault.

Apply the rules in order.

The foundation. A material defect in the property, known to Suresh, not discoverable by Tanuja with ordinary care. Rule (1)(a) required disclosure, and the closing sentence makes the omission fraudulent.

The mortgage. The property was not sold subject to incumbrances, so rule (1)(g) requires Suresh to discharge it. Under rule (5)(b) Tanuja could have retained Rs. 12 lakh out of the price and paid the bank directly.

The metro station. This is a fact about the nature or extent of the seller's interest? No. It is a fact about the neighbourhood and the market, not about what Suresh owns. Rule (5)(a) does not catch it, and Tanuja need not disclose it. Had she instead discovered that Suresh owned an extra strip of land he had forgotten about, that would be within the rule and she would have to tell him.

The Rs. 20 lakh unpaid. Ownership passed on the registered deed before full payment, so under rule (4)(b) Suresh has a charge on the godown for Rs. 20 lakh with interest from the date possession was delivered. It binds Tanuja, and would bind a donee from her or a buyer from her with notice, but not a purchaser for value without notice.

The fire. Ownership had passed, so under rule (5)(c) the loss is Tanuja's, the damage not having been caused by Suresh. Conversely if the metro announcement had doubled the value, rule (6)(a) gives that gain to her.

The title deeds. Suresh sold the whole godown and has been paid only part, so rule (3), which is triggered by payment of the whole of the purchase money, does not yet oblige him to hand them over.

What it does NOT mean

None of it is mandatory. Everything yields to a contract to the contrary.

The seller need not disclose a patent defect. Only one the buyer could not discover with ordinary care.

The seller need not volunteer the title deeds. Rule (1)(b) operates on the buyer's request.

The buyer's duty of disclosure is narrow. It covers facts about the seller's interest that materially increase its value, not market intelligence.

Risk follows ownership, not possession. Rule (5)(c) is keyed to the ownership having passed.

The seller's charge does not bind everyone. It binds the buyer, a gratuitous transferee and a transferee with notice; a purchaser for value without notice takes free.

A fiduciary seller gives a narrower covenant, limited to his own acts.

Distinctions

Quick revision

• Section 55 applies in the absence of a contract to the contrary.
• Seller bound, rule (1): (a) disclose material latent defects in property or title; (b) produce title deeds on request; (c) answer relevant questions; (d) execute a proper conveyance on payment or tender; (e) take an ordinarily prudent owner's care meanwhile; (f) give possession; (g) pay charges, rent and interest to the date of sale and discharge incumbrances unless sold subject to them.
• Rule (2): implied covenant that the interest subsists and he has power to transfer; a fiduciary seller covenants only as to his own acts; the benefit runs with the interest.
• Rule (3): on payment of the whole price, deliver the title deeds; seller retaining part keeps them all; on a sale to several buyers, the lot of greatest value takes them.
• Rule (4): seller keeps rents and profits till ownership passes, and has a charge for unpaid purchase money with interest from delivery of possession.
• Rule (5): buyer must disclose a fact increasing the value of the seller's interest; pay the price, retaining the amount of incumbrances where sold free of them; bear loss and pay outgoings once ownership has passed.
• Rule (6): buyer takes improvements and rents once ownership has passed, and has a charge for prepaid purchase money, plus earnest and costs where he properly declines delivery.
• Omission of the disclosures in (1)(a) and (5)(a) is fraudulent.

Test yourself

1. Is section 55 mandatory? No. It applies only in the absence of a contract to the contrary, so the parties may vary any of its rules.

2. Must a seller disclose a crack in the wall that any visitor can see? No. Rule (1)(a) covers a material defect which the buyer could not with ordinary care discover. A patent defect need not be disclosed.

3. What is the vendor's lien and whom does it bind? Under rule (4)(b), where ownership has passed before the whole price is paid, the seller has a charge on the property for the unpaid purchase money with interest from the date possession was delivered. It binds the buyer, a transferee without consideration, and a transferee with notice of the non-payment.

4. A buyer paid an advance and the seller refuses to complete. What does the buyer hold? A charge on the property under rule (6)(b) for the purchase money properly paid in anticipation of delivery with interest, as against the seller and all claiming under him to the extent of the seller's interest, provided he has not improperly declined delivery.

5. Who bears the loss if the house burns down after the sale deed but before possession? The buyer, under rule (5)(c), if the ownership has passed and the seller did not cause the loss. Risk follows ownership rather than possession.

6. How is the covenant for title different where a trustee sells? An ordinary seller is deemed to contract that the interest subsists and that he has power to transfer it. A seller in a fiduciary character is deemed to contract only that he has done no act whereby the property is incumbered or whereby he is hindered from transferring it.

7. A buyer learns the seller owns an adjoining strip he has forgotten about, which doubles the value. Must he say so? Yes. Rule (5)(a) requires disclosure of a fact as to the nature or extent of the seller's interest, known to the buyer, which he has reason to believe the seller does not know, and which materially increases the value of that interest. Omitting it is fraudulent.

8. Property is sold to three buyers in separate lots. Who keeps the title deeds? The buyer of the lot of greatest value, under the second proviso to rule (3), and he must produce them and furnish copies to the others on reasonable request at their cost.

Persons claiming under the mortgagee. For example someone to whom he has transferred the mortgage.

Any other person who has for consideration acquired an interest in any of the properties. This is the limit that decides competing-buyer problems. If the mortgagor sold plot B to a second buyer for value, that buyer's position cannot be prejudiced either, and neither purchaser can force the debt entirely onto the other's plot.

Note what those three have in common: each of them paid for their position. Marshalling redistributes a burden only where doing so takes nothing from anyone who gave value.

A worked example

Vikas owns three plots at Wagholi, each worth Rs. 30 lakh. He mortgages all three to a single bank for Rs. 36 lakh. He then sells plot A to Yamini for its full value.

Yamini's right. Under section 56 she may require the bank to satisfy its Rs. 36 lakh out of plots B and C, which Vikas kept. Those are worth Rs. 60 lakh between them, so they will extend to the whole debt, and plot A is left alone.

Change the numbers. Suppose the debt is Rs. 75 lakh and plots B and C are worth Rs. 60 lakh together. Yamini may still marshal, but only "so far as the same will extend". The bank takes Rs. 60 lakh from B and C, and may come against plot A for the remaining Rs. 15 lakh, because the alternative would prejudice the mortgagee, which section 56 forbids.

Add a second buyer. Suppose Vikas had already sold plot B to Zoheb for value before selling plot A to Yamini. Neither buyer may throw the whole debt onto the other's plot, because each has for consideration acquired an interest and neither may be prejudiced. The bank's claim is then borne between the plots, and the working out is a question of contribution under section 82.

Remove the common mortgagee. Suppose plot A was mortgaged to a bank and plot B to a finance company. Section 56 has nothing to operate on: marshalling requires one mortgagee holding several properties.

Reverse the order. Suppose Vikas sold plot A to Yamini first and mortgaged the remaining plots afterwards. Section 56 does not apply, because it requires the mortgage to come first and the sale after.

What it does NOT mean

It does not reduce the mortgagee's security. He may not be prejudiced, so where the retained property is insufficient he can still reach the property sold for the balance.

It does not require the buyer to have had notice. Section 56 does not turn on notice; it turns on the order of the transactions and on nobody who gave value being prejudiced.

It does not apply where there are two mortgagees. One mortgagee holding two or more properties is a condition.

It does not apply where the sale came first.

It does not defeat another purchaser for value. A person who has for consideration acquired an interest in any of the properties cannot be prejudiced.

It is not the same as contribution. Marshalling decides which property answers the debt; contribution under section 82 decides in what proportions several properties share it.

Distinctions

Quick revision

• Marshalling means arranging in order: a creditor with two funds must take from the one his rival cannot reach, if it costs him nothing.
• Conditions: one owner; two or more properties; mortgaged to one mortgagee; then sold to another; no contract to the contrary.
• Right: the buyer may have the debt satisfied out of the properties not sold to him, so far as they will extend.
• Three limits: no prejudice to the mortgagee, to persons claiming under him, or to anyone who for consideration acquired an interest in any of the properties.
• If the retained property is insufficient, the mortgagee may still come against the property sold for the balance.
• The mortgagee's counterpart is section 81; the sharing rule is section 82.

Test yourself

1. State the conditions for marshalling under section 56. The owner of two or more properties mortgages them to one person, and afterwards sells one or more of them to another; and there is no contract to the contrary.

2. What exactly may the buyer require? That the mortgage debt be satisfied out of the property or properties not sold to him, so far as those will extend.

3. Does the buyer need to have had no notice of the mortgage? No. Section 56 does not turn on notice. It turns on the order of the transactions and on the three protected groups not being prejudiced.

4. The retained property is worth less than the debt. What happens? The mortgagee takes what the retained property will yield and may then proceed against the property sold for the balance, because marshalling may not prejudice the mortgagee.

5. Two plots are mortgaged to two different lenders and one is sold. Can the buyer marshal? No. Section 56 requires the properties to have been mortgaged to one person.

6. How does marshalling differ from contribution? Marshalling decides which property should answer the debt, and is claimed by a purchaser of one of them. Contribution under section 82 decides in what proportions the several properties share the debt among themselves.

The one-tenth cap and the recorded-reasons requirement are the sort of detail that makes a good answer, and the exclusion of depreciation of investments is deliberate: the fund is invested in Government securities, and the parties are not to be charged for market movement.

Clause (b): declaring the property free. The Court may then, if it thinks fit, and after notice to the incumbrancer unless it records in writing reasons for dispensing with notice, declare the property freed from the incumbrance, make any order for conveyance or vesting order proper for giving effect to the sale, and give directions for the retention and investment of the money in Court.

Clause (c): paying it out. After notice to the persons interested in or entitled to the money, the Court may direct payment or transfer to the persons entitled to receive it or to give a discharge, and generally give directions about the application or distribution of the capital or income.

Clause (d): appeal. An appeal lies from any declaration, order or direction under the section as if it were a decree.

Clause (e): which court. "Court" means a High Court in the exercise of its ordinary or extraordinary original civil jurisdiction; the Court of a District Judge within whose local limits the property or any part of it is situate; and any other Court the State Government declares competent by notification in the Official Gazette.

A worked example

A bungalow at Igatpuri is being sold in execution of a money decree against its owner. It carries a mortgage of Rs. 20 lakh in favour of a lender who lives abroad and cannot be brought to the negotiating table, and Rs. 1.4 lakh of interest is due.

The problem. Bidders will discount the property heavily, or stay away, because whoever buys it may face the mortgagee.

Section 57 applied. Any party to the sale may apply. This is a capital sum charged on the property, so clause (a)(2) applies and the amount to be paid in is enough to meet the incumbrance and the interest due, that is Rs. 21.4 lakh. To that the Court adds a cushion for further costs, expenses, interest and other contingencies, capped at one-tenth of Rs. 21.4 lakh, so up to about Rs. 2.14 lakh, unless it records special reasons for requiring more.

What follows. After notice to the mortgagee, or on recorded reasons for dispensing with notice, the Court may declare the bungalow free of the mortgage and make the orders needed to give effect to the sale. The buyer takes a clean title. The mortgagee is paid out of the fund under clause (c), and if he is unhappy with any of it he may appeal under clause (d) as from a decree.

Change the incumbrance. Suppose instead the property is charged with an annuity of Rs. 60,000 a year payable to an elderly relative. Clause (a)(1) applies: the amount paid in is what the Court considers will, invested in Central Government securities, produce enough interest to keep down that annual sum. The capital is not handed over, because the charge is a recurring one and must be provided for indefinitely.

What it does NOT mean

It does not extinguish the incumbrance. It moves it from the land to a fund in court. The incumbrancer is paid; he is not deprived.

It is not confined to court sales. The words are "by the Court or in execution of a decree, or out of Court", so a private sale can use it too.

The court is not obliged. Twice the section says "if it thinks fit". It is discretionary.

Notice to the incumbrancer is the norm. It may be dispensed with only for reasons recorded in writing.

The additional amount is capped. One-tenth of the original sum, unless special reasons are recorded, and it never covers depreciation of investments.

"Court" is defined narrowly. A High Court on its original civil side, a District Judge's Court where the property lies, or a Court notified by the State Government.

Distinctions

Quick revision

• Section 57 lets a sale go through free of an incumbrance by substituting money in court for the burden on the land.
• Applies to a sale by the Court, in execution of a decree, or out of Court, on the application of any party, and the Court acts only if it thinks fit.
• Recurring charges and capital sums on a determinable interest: pay in enough that the interest on Central Government securities provides for the charge.
• Other capital sums: pay in enough to meet the incumbrance and interest due.
• Plus a contingency amount not exceeding one-tenth, unless the Court records special reasons; depreciation of investments is excluded.
• The Court may then declare the property freed, after notice to the incumbrancer unless reasons for dispensing with it are recorded.
• An appeal lies as from a decree. "Court" means a High Court on its original civil side, a District Judge's Court, or a Court notified by the State Government.
• Section 57 is one of the two exceptions named in section 2(d), which is why it reaches a court sale.

Test yourself

1. What does section 57 achieve? It allows immovable property subject to an incumbrance to be sold free of it, by having a sufficient sum paid into Court to answer the incumbrance, after which the Court may declare the property freed.

2. Does it apply only to sales by a court? No. It applies where the property is sold by the Court, in execution of a decree, or out of Court.

3. How is the amount fixed for an annuity charged on the property? Under clause (a)(1), at such amount as the Court considers will, when invested in securities of the Central Government, be sufficient by means of the interest to keep down or otherwise provide for the charge.

4. What is the limit on the additional contingency amount? One-tenth of the original amount to be paid in, unless the Court for special reasons, which it must record, requires a larger sum. It does not cover depreciation of investments.

5. Must the incumbrancer be given notice? Yes, unless the Court for reasons recorded in writing thinks fit to dispense with notice.

6. Is an order under section 57 appealable? Yes. Clause (d) provides that an appeal lies from any declaration, order or direction under the section as if it were a decree.

(c) Mortgage by conditional sale

The mortgagor ostensibly sells the property, on one of three conditions:

• that on default of payment on a certain date the sale shall become absolute; or
• that on such payment being made the sale shall become void; or
• that on such payment being made the buyer shall transfer the property back to the seller.

The proviso, and it is the whole of the modern law: no such transaction is deemed a mortgage unless the condition is embodied in the document which effects or purports to effect the sale.

That proviso was added to stop a recurring injustice. Lenders would take an outright sale deed and a separate secret agreement to reconvey; when the borrower paid, the lender produced the sale deed and denied the rest. Requiring the condition to sit in the same document means the character of the transaction is visible on its face. Two documents means a sale, not a mortgage, and that single sentence answers most problem questions on this clause.

(d) Usufructuary mortgage

The mortgagor delivers possession, or expressly or impliedly binds himself to deliver possession, and authorises the mortgagee to retain possession until payment, and to receive the rents and profits, or any part of them, and to appropriate them in lieu of interest, or in payment of the mortgage-money, or partly each.

Usufruct means the produce or profit of a thing. Two things follow and both are examined: there is no personal liability on the mortgagor, and there is no time fixed for repayment, so the mortgagee's remedy is simply to stay in possession and take the income. He cannot sue for the money and cannot foreclose or sell.

(e) English mortgage

Three elements together: the mortgagor binds himself to repay on a certain date; he transfers the property absolutely to the mortgagee; subject to a proviso for re-transfer on payment as agreed.

It is the strongest form for the lender, combining a personal covenant with an absolute transfer, and is the form banks and companies commonly use.

(f) Mortgage by deposit of title-deeds

A person, in one of the named towns, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security on it.

The named towns are Calcutta, Madras and Bombay, and any other town the State Government concerned specifies by notification in the Official Gazette.

This is the equitable mortgage of commercial practice. It is remarkable for what it does not need: no writing, no registration, no attestation. Delivery of the deeds plus the intention is the whole of it, which is why section 59 excepts it from the registered-instrument requirement. Its three essentials are a debt, a deposit of title deeds, and an intention that they be security.

(g) Anomalous mortgage

A mortgage which is not any of the five above. The Act defines it purely by exclusion. Anomalous mortgages are usually local or customary forms, or combinations, such as a usufructuary mortgage that also carries a personal covenant to pay. Their rights and liabilities are governed by the contract between the parties, and by section 98.

A worked example

Ashwini needs Rs. 20 lakh and owns a shop at Karad. Consider five arrangements with a lender, Bhaskar.

One. She signs a deed promising to repay in three years and agreeing that if she does not, Bhaskar may have the shop sold to recover the money. She keeps the shop and runs her business from it. Simple mortgage: a personal covenant plus a right to cause a sale, no possession.

Two. She executes a sale deed of the shop to Bhaskar, and the same document provides that if she pays Rs. 20 lakh within three years the sale becomes void. Mortgage by conditional sale. Had the condition been in a separate agreement executed the same day, the proviso to clause (c) would defeat it and it would be an outright sale.

Three. She hands the shop over to Bhaskar and authorises him to collect the rent of Rs. 30,000 a month and keep it in lieu of interest until the principal is repaid, with no date fixed and no promise to pay personally. Usufructuary mortgage.

Four. She promises to repay on a fixed date, transfers the shop absolutely to Bhaskar, and the deed provides that he will re-transfer it on payment. English mortgage.

Five. In Mumbai she hands Bhaskar the original title deeds of the shop, saying they are to be held as security for the loan. Nothing is written. Mortgage by deposit of title-deeds, valid without writing or registration because it is made in one of the named towns.

And if she had given Bhaskar possession and also promised to pay personally on a fixed date? That fits none of the five definitions exactly, so it is an anomalous mortgage under clause (g).

What it does NOT mean

A mortgage is not a sale. The transfer is for the purpose of securing, and the mortgagor retains the equity of redemption.

Not all of the interest passes. Only "an interest", even in an English mortgage where the transfer is expressed to be absolute, because it is subject to the proviso for re-transfer.

A mortgage by conditional sale needs one document. The condition must be embodied in the document which effects or purports to effect the sale.

A usufructuary mortgagee cannot sue for the money or foreclose. There is no personal covenant and no date; his security is the possession and the profits.

A simple mortgagee cannot sell privately. His right is to cause the property to be sold, which means through the court.

A mortgage by deposit of title-deeds is not available everywhere. It works only in Calcutta, Madras, Bombay and towns notified by the State Government.

"Anomalous" is not a defect. It simply means the mortgage does not fit the five named forms.

Distinctions

Quick revision

• Mortgage: transfer of an interest in specific immovable property to secure a loan, an existing or future debt, or an engagement giving rise to a pecuniary liability.
• Vocabulary: mortgagor, mortgagee, mortgage-money, mortgage-deed.
• The mortgagor keeps the equity of redemption.
• Simple (b): no possession, personal covenant, right to cause a sale.
• Conditional sale (c): ostensible sale on one of three conditions; the condition must be in the same document.
• Usufructuary (d): possession to the mortgagee, rents and profits in lieu of interest or in payment; no personal liability, no fixed date.
• English (e): personal covenant to repay on a certain date, absolute transfer, proviso for re-transfer.
• Deposit of title-deeds (f): in Calcutta, Madras, Bombay or a notified town; no writing or registration needed; needs a debt, a deposit, and an intention to secure.
• Anomalous (g): none of the above.

Test yourself

1. Define a mortgage and identify the four elements of the definition. A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The elements are a transfer of an interest, specific immovable property, a purpose of security, and an obligation of the kind described.

2. What single requirement decides whether a transaction is a mortgage by conditional sale or an outright sale? That the condition is embodied in the document which effects or purports to effect the sale. If it appears in a separate document the proviso to section 58(c) prevents the transaction being deemed a mortgage.

3. Which kind of mortgage carries no personal liability and no date for repayment? A usufructuary mortgage under section 58(d). The mortgagee takes possession and appropriates the rents and profits, and has no right to sue for the money or to foreclose.

4. Where can a mortgage by deposit of title-deeds be made, and what does it require? In Calcutta, Madras and Bombay, and in any other town the State Government concerned notifies. It requires a debt, delivery of documents of title to a creditor or his agent, and the intent to create a security. No writing, registration or attestation is needed.

5. What are the three elements of an English mortgage? The mortgagor binds himself to repay on a certain date; he transfers the property absolutely to the mortgagee; and the transfer is subject to a proviso that the mortgagee will re-transfer on payment as agreed.

6. What makes a mortgage anomalous? That it is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within section 58.

7. Why is a mortgage not a transfer of the whole ownership? Because only "an interest" is transferred, and it is transferred for the purpose of security. The mortgagor retains the equity of redemption, his right to recover the property on payment.

There is a caution worth carrying. If the parties choose to record the transaction in a document that itself creates the security, that document requires registration, and an unregistered one will not be admissible to prove it. What is safe is a memorandum that merely records a deposit already made; what is fatal is a document that is the bargain. That distinction is where most litigation on clause (f) happens.

Section 59A: the words reach successors

Section 59A provides that, unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees include persons deriving title from them respectively.

Without it, every right and duty in Chapter IV would have to be rewritten each time the property or the debt changed hands. With it, a person who buys the equity of redemption steps into the mortgagor's shoes for the whole chapter, and a person to whom the mortgage is assigned steps into the mortgagee's. It is a small section that saves the rest of the chapter from being twice its length, and it is worth citing whenever a problem involves a successor rather than an original party.

A worked example

Chandan borrows Rs. 15 lakh from Deepa and mortgages his house at Chiplun.

Version one. They write out a mortgage deed. Chandan signs it. Deepa's brother and the man who typed the document sign at the foot. The deed is registered.

Is it a good mortgage? The sum is above a hundred rupees, so registration, signature and attestation by at least two witnesses are all required. Registration and signature are present. But the typist signed to say he wrote the document, not to witness the execution, so he lacks animus attestandi and is not an attesting witness. Only one qualifying witness remains, and section 59 requires two. The mortgage fails for want of attestation.

Version two. Same document, but two neighbours who watched Chandan sign also sign in his presence. Valid.

Version three. In Mumbai, Chandan simply hands Deepa the original title deeds of the house and says they are security for the loan. Nothing is written and nothing registered. Valid, as a mortgage by deposit of title-deeds, because section 59 excepts it.

Version four. Same as version three, but they also execute a document which states that "the borrower hereby creates a security over the property by depositing the title deeds", and do not register it. This document purports to create the security rather than record a completed deposit, so it requires registration, and unregistered it cannot be used to prove the mortgage.

Version five. The loan is Rs. 80 and Chandan hands over possession of a small plot instead of executing any document. Valid, because below a hundred rupees a mortgage may be made by delivery of the property, and this is not a simple mortgage.

Version six. The loan is Rs. 80, Chandan keeps possession and binds himself personally to pay with a right of sale on default. That is a simple mortgage, and delivery is not available for it, so an instrument signed and attested is required.

And a successor. Suppose Chandan later sells the house, subject to the mortgage, to Esha, and Deepa assigns the mortgage to a bank. Section 59A makes every reference to the mortgagor and mortgagee in Chapter IV apply to Esha and the bank, so the redemption and foreclosure provisions work between them without anything more.

What it does NOT mean

Registration alone is not enough. Signature and attestation by two witnesses are separate requirements at a hundred rupees and above.

Any two signatures will not do. They must be attesting witnesses within section 3.

The mortgagee need not sign. Section 59 requires the mortgagor's signature.

Delivery is not available for a simple mortgage, even below a hundred rupees.

A mortgage by deposit of title-deeds needs no formality, but a document that creates rather than records it must be registered.

Section 59A is not confined to buyers. It covers anyone deriving title from either party, and applies throughout Chapter IV unless a provision expressly says otherwise.

Distinctions

Quick revision

• Rs. 100 and upwards: registered instrument, signed by the mortgagor, attested by at least two witnesses.
• Exception: a mortgage by deposit of title-deeds needs none of these.
• Below Rs. 100: that instrument, or delivery of the property, but never delivery for a simple mortgage.
• Attestation carries the section 3 meaning; a scribe or identifying witness does not count.
• A document that creates an equitable mortgage needs registration; one that merely records a completed deposit does not.
• Section 59A: in Chapter IV, mortgagor and mortgagee include persons deriving title from them, unless otherwise expressly provided.

Test yourself

1. State the requirements for a mortgage securing Rs. 5 lakh. A registered instrument, signed by the mortgagor and attested by at least two witnesses, unless it is a mortgage by deposit of title-deeds.

2. A mortgage deed is registered and signed by the mortgagor, and bears the signatures of the mortgagee and the scribe. Is it valid? No. Neither the mortgagee nor the scribe signed with the intention of witnessing the execution, so there are not two attesting witnesses within section 3, and section 59 is not satisfied.

3. Can a mortgage of Rs. 90 be made by handing over possession? Yes, unless it is a simple mortgage. Below one hundred rupees a mortgage may be made by delivery of the property, but delivery is excepted for a simple mortgage, which by definition involves no delivery of possession.

4. Why does a mortgage by deposit of title-deeds escape section 59? Because section 59 expressly excepts it. The security is created by the deposit of the documents with intent to secure, so no instrument exists that could be registered or attested.

5. Does the mortgagee have to sign the mortgage deed? No. Section 59 requires the instrument to be signed by the mortgagor.

6. What does section 59A do? It provides that, unless otherwise expressly provided, references in Chapter IV to mortgagors and mortgagees include persons deriving title from them, so successors and assignees take the rights and liabilities of the original parties.

The proviso. The right must not have been extinguished by act of the parties or by decree of a Court. Those are the only two ways it ends. A decree here means a decree of foreclosure or sale. An act of the parties means a genuine, separate transaction by which the mortgagor sells his equity of redemption to the mortgagee, which is lawful if it is truly independent and not part of the original bargain.

Reasonable notice. The section preserves any provision that, where the time fixed for payment has passed or no time was fixed, the mortgagee is entitled to reasonable notice before payment or tender. A lender is not obliged to keep the money ready at a moment's notice.

Redemption of a portion. Nothing in the section entitles a person interested in a share only to redeem his own share on paying a proportionate part, except where the mortgagee, or all of several mortgagees, has acquired in whole or in part the share of a mortgagor.

This is the rule against piecemeal redemption, and it protects the mortgagee: he lent against the whole property and should not be left holding fragments. The exception exists because once the mortgagee has himself bought into one share, he has broken the integrity of the security by his own act and cannot complain.

Section 60A: redeem in favour of a third person

Where the mortgagor is entitled to redeem, he may require the mortgagee, instead of re-transferring the property to him, to assign the mortgage-debt and transfer the property to a third person he directs, and the mortgagee is bound to do so.

This is what makes refinancing possible. A borrower who has found a cheaper lender does not have to find the money, take a re-transfer, and then mortgage again, paying stamp duty and registration twice. The old mortgage is simply assigned to the new lender.

Sub-section (2): the right belongs to the mortgagor or to any encumbrancer, notwithstanding an intermediate encumbrance. An encumbrancer's requisition prevails over the mortgagor's; and as between encumbrancers, a prior encumbrancer's prevails over a subsequent one.

Sub-section (3): the section does not apply to a mortgagee who is or has been in possession. He would have to account for his period of possession, and an assignment would leave that unresolved.

Section 60B: inspection of documents

As long as the right of redemption subsists, the mortgagor is entitled, at all reasonable times, at his request and at his own cost, and on payment of the mortgagee's costs and expenses, to inspect and make copies, abstracts or extracts of the documents of title in the mortgagee's custody or power.

It matters because a mortgagor who cannot see his own title deeds cannot sell the property, raise money elsewhere, or check what is being claimed against him.

Section 61: redeem separately or together

A mortgagor who has executed two or more mortgages in favour of the same mortgagee is entitled, in the absence of a contract to the contrary, when the principal money of any two or more of them has become due, to redeem any one separately, or any two or more together.

This abolished the old doctrine of consolidation, by which a lender holding several mortgages from the same borrower could insist that none be redeemed unless all were. That doctrine let a lender use a well-secured debt to force payment of a badly-secured one. Note it yields to a contract to the contrary.

Section 62: the usufructuary mortgagor's right to recover possession

A usufructuary mortgagor has a right to recover possession, together with the mortgage-deed and documents:

(a) where the mortgagee is authorised to pay himself the mortgage-money from the rents and profits: when that money is paid, meaning when the income has discharged it; and

(b) where he is authorised to pay himself from the rents and profits a part only of the mortgage-money: when the term, if any, prescribed for payment has expired and the mortgagor pays or tenders the mortgage-money or the balance, or deposits it in Court.

The section exists because a usufructuary mortgage has no date and no personal covenant, so without it there would be no way of saying when the arrangement ends. Under limb (a) it ends by itself, without any payment, once the property has repaid the loan out of its own income.

What counts as a clog

The doctrine is judge-made and the section gives it room by protecting the right unless extinguished by act of the parties or by decree. Terms treated as clogs include:

• a condition that on default the mortgage shall become a sale, or that the property shall belong to the mortgagee absolutely;
• a term postponing redemption for an unreasonably long period;
• a term allowing redemption only within a short window, after which the right is lost;
• a collateral advantage to the mortgagee that continues after redemption, such as a right to buy the produce of the land for ever;
• a term that the mortgagor may redeem only during his lifetime, or only he and not his heirs.

The test to state is whether the term, in substance, prevents, hinders or postpones the return of the property once the debt is paid. A long term is not automatically bad and a collateral advantage during the mortgage is not automatically bad; what is fatal is a term that survives payment or makes payment pointless.

A worked example

Farida mortgages her house at Nanded to Girish for Rs. 25 lakh, repayable in five years. The deed contains four clauses.

Clause 1: "If Farida does not repay within five years, the house shall belong to Girish absolutely." A clog. It converts a security into a sale on default, contradicting "once a mortgage, always a mortgage". Struck out; the mortgage stands and Farida may still redeem.

Clause 2: "Farida may redeem only in the sixth year, and not afterwards." A clog. A window that extinguishes the right if missed hinders redemption. Struck out.

Clause 3: "Girish shall have the right to purchase the mango crop at half price for twenty years, whether or not the mortgage is redeemed." A collateral advantage that survives redemption. That part is a clog and falls; an advantage confined to the life of the mortgage would have been unobjectionable.

Clause 4: "Girish shall be entitled to one month's notice before repayment." Valid. Section 60 expressly preserves a provision for reasonable notice where the time has passed or none was fixed.

Farida pays in year six. She may require the mortgage-deed and documents under limb (a); possession if Girish had it, under limb (b); and at her own cost a re-transfer or a registered acknowledgement under limb (c).

She has found a cheaper lender. Under section 60A she may require Girish to assign the debt and transfer the property to that lender instead of re-transferring to her. Unless Girish is or has been in possession, in which case sub-section (3) excludes it.

She owns only a half share and wants to redeem that half. She cannot, on the rule against piecemeal redemption, unless Girish has himself acquired a share of a mortgagor.

She has three separate mortgages with Girish and wants to redeem one. Under section 61 she may redeem any one separately, or two or more together, absent a contract to the contrary.

What it does NOT mean

The right does not arise before the money is due. Section 60 opens with "at any time after the principal money has become due".

A clog does not destroy the mortgage. Only the offending term goes; the mortgage and the right to redeem survive.

Not every long postponement is a clog. The question is whether the term in substance prevents or hinders redemption.

A collateral advantage is not always bad. One that ends with the mortgage is permissible; one that continues after redemption is a clog.

The mortgagor pays the costs of redemption. Section 60 says the re-transfer or acknowledgement is at his cost, and section 60B puts the cost of inspection on him too.

Section 60A does not apply to a mortgagee in possession.

Section 61 yields to a contract to the contrary.

Piecemeal redemption is not allowed, except where the mortgagee has acquired a mortgagor's share.

Distinctions

Quick revision

• Once a mortgage, always a mortgage; a clog on the equity of redemption is void.
• Section 60: after the principal money is due, on payment or tender at a proper time and place, the mortgagor may require (a) the deed and documents, (b) possession where the mortgagee has it, (c) at his own cost a re-transfer or a registered acknowledgement.
• Extinguished only by act of the parties or decree of a Court.
• Reasonable notice before repayment may be stipulated.
• No piecemeal redemption, except where the mortgagee has acquired a share of a mortgagor.
• Section 60A: require an assignment to a third person instead of a re-transfer; an encumbrancer's requisition beats the mortgagor's, a prior encumbrancer's beats a later one; not available against a mortgagee in or formerly in possession.
• Section 60B: inspection and copies of title documents while the right subsists, at the mortgagor's cost.
• Section 61: several mortgages to the same mortgagee may be redeemed separately or together; consolidation abolished, subject to contrary contract.
• Section 62: the usufructuary mortgagor recovers possession when the income has paid the debt, or on paying the balance after the term expires.

Test yourself

1. When does the right of redemption arise, and how does it end? It arises at any time after the principal money has become due. It ends only when extinguished by act of the parties or by decree of a Court.

2. What is a clog on the equity of redemption? Any term whose effect is to prevent, hinder or postpone the mortgagor's right to recover his property on payment. Equity strikes the term out and leaves the mortgage standing.

3. A deed provides that on default the property becomes the mortgagee's absolutely. Effect? The clause is a clog and is void, because it would turn a security into a sale. The mortgage stands and the mortgagor may still redeem.

4. Can a mortgagor with a half share redeem that share alone on paying half the debt? No. Section 60 does not entitle a person interested in a share only to redeem his own share on a proportionate payment, except where the mortgagee, or all of several mortgagees, has acquired in whole or in part the share of a mortgagor.

5. What does section 60A allow, and when is it unavailable? It allows the mortgagor to require the mortgagee to assign the debt and transfer the property to a third person he directs, instead of re-transferring to him. It does not apply to a mortgagee who is or has been in possession.

6. What doctrine did section 61 abolish? Consolidation, by which a mortgagee holding several mortgages from the same mortgagor could refuse to allow any to be redeemed unless all were. Section 61 permits separate or joint redemption, subject to a contract to the contrary.

7. When does a usufructuary mortgagor recover possession where the mortgagee was authorised to pay himself the whole mortgage-money from the rents and profits? When that money is paid, that is when the rents and profits have discharged it. No further payment is needed.

8. Is a stipulation for notice before repayment a clog? No. Section 60 expressly preserves a provision entitling the mortgagee to reasonable notice where the time fixed has passed or no time was fixed.

Sub-section (2). He is liable, absent contrary contract, where the improvement was made at the mortgagee's cost and was:

• necessary to preserve the property from destruction or deterioration; or
• necessary to prevent the security from becoming insufficient; or
• made in compliance with the lawful order of a public servant or public authority.

Then he pays the proper cost as an addition to the principal, with interest at the rate on the principal or nine per cent per annum, and the profits from the improvement are credited to him.

The default therefore runs the other way from section 63: an improvement is presumed to be at the mortgagee's own risk. He cannot spend money on somebody else's property and hand over the bill, unless the spending was necessary or ordered.

Section 64: renewal of a mortgaged lease

Where the mortgaged property is a lease and the mortgagee obtains a renewal of it, the mortgagor on redemption has, absent a contract by him to the contrary, the benefit of the new lease.

Without it a mortgagee holding a leasehold could let the lease run out, take a fresh one in his own name, and redemption would give the mortgagor an expired term.

Section 65: the mortgagor's implied covenants

In the absence of a contract to the contrary, the mortgagor is deemed to contract:

(a) that the interest he professes to transfer subsists and that he has power to transfer it;

(b) that he will defend the title, or, where the mortgagee is in possession, enable him to defend it;

(c) that, so long as the mortgagee is not in possession, he will pay all public charges accruing due;

(d) where the property is a lease: that the rent, conditions and contracts binding on the lessee have been paid, performed and observed down to the commencement of the mortgage; and that, so long as the security exists and the mortgagee is not in possession, he will pay the rent, perform the conditions and observe the contracts;

(e) where the mortgage is a second or subsequent incumbrance: that he will pay the interest on each prior incumbrance as it becomes due, and discharge the principal of it at the proper time.

The benefit runs. As with section 55(2), the benefit of these contracts is annexed to and goes with the interest of the mortgagee, and may be enforced by every person in whom that interest is from time to time vested. So an assignee of the mortgage may sue on them.

Clause (a) is the mortgagor's covenant for title, the mirror of the seller's in section 55(2). Clause (e) explains itself: a second mortgagee's security is worth nothing if the first mortgagee forecloses, so the mortgagor must keep the prior debt in order.

Section 65A: the mortgagor's power to lease

Sub-section (1). A mortgagor while lawfully in possession has power to make leases which are binding on the mortgagee.

Without this a mortgagor in possession could not let the property at all without the mortgagee's concurrence, which would make ordinary management impossible. But an unrestricted power would let him destroy the security by granting a long lease at a nominal rent, so sub-section (2) fences it.

Sub-section (2), the five conditions:

(a) the lease must be such as would be made in the ordinary course of management, and in accordance with local law, custom or usage;

(b) it must reserve the best rent reasonably obtainable; no premium may be paid or promised and no rent payable in advance;

(c) it must contain no covenant for renewal;

(d) it must take effect from a date not later than six months from the date it is made;

(e) for a lease of buildings, with or without the land they stand on, the duration must not exceed three years, and the lease must contain a covenant for payment of rent and a condition of re-entry on non-payment within a specified time.

Read together, the five conditions all guard the same thing: the property must keep producing its full income for the mortgagee's benefit. A premium or advance rent takes value out of the future; a renewal covenant or a long term ties the property beyond the mortgage; a below-market rent reduces what the security yields.

Sub-section (3). Sub-section (1) applies only if a contrary intention is not expressed in the mortgage-deed, and the conditions in sub-section (2) may be varied or extended by the deed, taking effect as if the variations were in the sub-section.

Section 66: waste by a mortgagor in possession

A mortgagor in possession is not liable to the mortgagee for allowing the property to deteriorate; but he must not commit any act which is destructive or permanently injurious to it if the security is insufficient or will be rendered insufficient by that act.

Two ideas are in that sentence. Passive deterioration, letting a building age or a field go untended, is not actionable: the mortgagee did not bargain for the mortgagor to be his caretaker. Active destruction is actionable, but only where the security is or will become insufficient.

The Explanation defines insufficiency, and the figures are examinable. A security is insufficient unless the value of the property exceeds by one-third the amount for the time being due, or, if it consists of buildings, exceeds by one-half.

So the property must be worth at least one and a third times the debt, or one and a half times for buildings, before the mortgagee has no complaint.

A worked example

Hemant mortgages his plot with an old warehouse at Sangli to Ishwar for Rs. 40 lakh. Ishwar takes possession.

The river deposits land along one edge. An accession by nature under section 63. On redemption Hemant takes it, and pays nothing, because Ishwar was at no expense.

Ishwar buys the adjoining strip and merges it into the yard. An accession acquired at his expense. It cannot be separately enjoyed without detriment, so it must be delivered with the property. Hemant pays its proper cost only if the acquisition was necessary to preserve the property from destruction, forfeiture or sale, or was made with his assent; and if he pays, the profits from it are credited to him and the cost is added to the principal with interest at the rate on the principal, or nine per cent if none is fixed.

Ishwar installs an expensive lift nobody asked for. An improvement under section 63A. Hemant takes it on redemption and pays nothing, because it was neither necessary to preserve the property nor to keep the security sufficient nor ordered by an authority.

The municipality orders fire-safety works and Ishwar pays for them. Within section 63A(2): made in compliance with the lawful order of a public authority. Hemant is liable for the proper cost as an addition to the principal, with interest, and any profits from it are credited to him.

Now change the facts so that Hemant keeps possession. He lets the warehouse to a tenant for three years at the best rent obtainable, with no premium, no advance rent, no renewal covenant, taking effect next month, and containing a rent covenant and a re-entry condition. That lease satisfies section 65A(2) and binds Ishwar.

He instead lets it for fifteen years at a nominal rent against a large premium. It fails conditions (b), (c) and (e) and does not bind Ishwar.

He lets the warehouse fall into disrepair. Not actionable under section 66: mere deterioration is not waste.

He demolishes half the warehouse for scrap. Destructive. Whether Ishwar can complain depends on the Explanation: the property consists of buildings, so the security is insufficient unless its value exceeds the debt by one-half, that is unless it is worth more than Rs. 60 lakh. If the demolition brings it below that, Hemant is liable.

What it does NOT mean

Sections 63 and 63A apply where the mortgagee is in possession. They are addressed to accessions and improvements to property he holds.

The mortgagee cannot charge for improvements at will. Section 63A(1) makes the mortgagor not liable, except in the three cases in sub-section (2).

Nine per cent is a fallback. It applies only where no rate is fixed on the principal.

A mortgagor's lease is not automatically binding. It binds the mortgagee only if it satisfies section 65A(2), and only if the deed does not exclude the power.

Mere deterioration is not waste. Section 66 says so expressly.

Not all destructive acts are actionable. Only those committed where the security is, or will be rendered, insufficient.

Everything here is a default. Each section yields to a contract to the contrary.

Distinctions

Quick revision

• s.63: the mortgagor takes any accession on redemption; pays for one acquired at the mortgagee's expense only on the terms in the section; 9% where no rate is fixed.
• s.63A: he takes any improvement and pays nothing, unless it was necessary to preserve the property, necessary to keep the security sufficient, or ordered by a public authority.
• s.64: he takes the benefit of a renewed lease obtained by the mortgagee.
• s.65: implied covenants: title subsists and power to transfer; defend the title; pay public charges while the mortgagee is out of possession; keep a leasehold in good standing; pay interest and principal on prior incumbrances. The benefit runs with the mortgagee's interest.
• s.65A: a mortgagor lawfully in possession may lease so as to bind the mortgagee, if the lease is in the ordinary course of management, at the best rent, with no premium or advance rent, no renewal covenant, taking effect within six months, and for buildings not exceeding three years with a rent covenant and a re-entry condition. Excludable and variable by the deed.
• s.66: mere deterioration is not waste; destructive or permanently injurious acts are actionable only where the security is or becomes insufficient, meaning value not exceeding the debt by one-third, or one-half for buildings.

Test yourself

1. Who takes an accession to mortgaged property on redemption? The mortgagor, in the absence of a contract to the contrary, as against the mortgagee.

2. A mortgagee in possession builds an unnecessary extension. Must the mortgagor pay for it on redemption? No. Under section 63A(1) he is entitled to the improvement and is not liable for its cost, the case falling outside the three exceptions in sub-section (2).

3. What rate of interest applies to a cost added to the principal under sections 63 and 63A? The rate payable on the principal, or, where no such rate is fixed, nine per cent per annum.

4. Name three conditions a mortgagor's lease must satisfy to bind the mortgagee. It must be in the ordinary course of management; it must reserve the best rent reasonably obtainable with no premium and no rent in advance; and it must contain no covenant for renewal. It must also take effect within six months, and for buildings not exceed three years with a rent covenant and a re-entry condition.

5. Is a mortgagor in possession liable for letting the property deteriorate? No. Section 66 expressly says he is not. He is liable only for acts that are destructive or permanently injurious, and then only where the security is or will be rendered insufficient.

6. When is a security "insufficient" under section 66? Unless the value of the mortgaged property exceeds by one-third the amount for the time being due, or, where the property consists of buildings, exceeds it by one-half.

7. Why must a second mortgagor covenant to pay the prior incumbrance? Because a subsequent mortgagee's security depends on the prior one being kept in order; if the first mortgagee enforces, the later security may be worth nothing. Section 65(e) implies that covenant.

Clause (c). The mortgagee of a railway, canal or other work in the maintenance of which the public are interested may sue for neither foreclosure nor sale. Public utility outweighs the security, and the lender is left to other remedies.

Clause (d). A person interested in part only of the mortgage-money may not sue on a corresponding part of the property, unless the mortgagees have, with the consent of the mortgagor, severed their interests. This is the mortgagee's counterpart of the rule against piecemeal redemption in section 60: the security is not to be broken up.

Section 67A: one suit on several mortgages

A mortgagee holding two or more mortgages executed by the same mortgagor, in respect of each of which he has a right to obtain the same kind of decree under section 67, who sues on any one of them, is bound, absent contrary contract, to sue on all the mortgages in respect of which the money has become due.

This prevents harassment by instalment. Without it a lender could bring one suit after another on separate mortgages against the same borrower, multiplying costs and keeping him permanently in litigation. Note the two conditions: the same mortgagor, and the same kind of decree.

It is the mortgagee's counterpart of section 61, which lets the mortgagor redeem several mortgages separately.

Section 68: the right to sue for the mortgage-money

The mortgagee may sue for the money in the following cases and no others:

(a) where the mortgagor binds himself to repay;

(b) where, by a cause other than the wrongful act or default of either party, the property is wholly or partially destroyed or the security is rendered insufficient within section 66, and the mortgagee has given the mortgagor a reasonable opportunity to provide further security, and he has failed to do so;

(c) where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor;

(d) where, the mortgagee being entitled to possession, the mortgagor fails to deliver it, or to secure possession to him without disturbance by the mortgagor or a person claiming under a title superior to his.

The proviso. In case (a), a transferee from the mortgagor or from his legal representative is not liable to be sued for the mortgage-money. The personal covenant binds the person who gave it, not a buyer of the property.

Sub-section (2): the stay. Where a suit is brought under clause (a) or (b), the Court may, at its discretion, stay the suit notwithstanding any contract to the contrary, until the mortgagee has exhausted all his remedies against the mortgaged property, unless he abandons his security and, if necessary, re-transfers the property.

That discretion states a principle worth writing out: a secured creditor should go against his security first. He is not to leave the property untouched and pursue the borrower personally, unless he gives the security up altogether.

Section 69: sale without the intervention of the Court

The three cases, and no others, in which a mortgagee or a person acting on his behalf has power to sell, or concur in selling, on default:

(a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist, or a member of any race, sect, tribe or class specified by the State Government in the Official Gazette;

(b) where a power of sale without the intervention of the Court is expressly conferred by the mortgage-deed and the mortgagee is the Government;

(c) where such a power is expressly conferred by the deed and the mortgaged property or any part of it was, at the date of the deed, situate within the towns of Calcutta, Madras or Bombay, or any other town or area the State Government notifies.

Note that in (b) and (c) an express power in the deed is essential, and that in (c) the location is tested at the date of the mortgage-deed, not at the date of sale.

Sub-section (2): the conditions before exercise. No such power may be exercised unless and until:

(a) notice in writing requiring payment of the principal has been served on the mortgagor, or one of several mortgagors, and default has continued for three months after service; or

(b) interest amounting to at least five hundred rupees is in arrear and unpaid for three months after becoming due.

Section 69A: appointment of a receiver

A mortgagee having the right to exercise a power of sale under section 69 may appoint, by writing signed by him or on his behalf, a receiver of the income of the property.

Who may be appointed. A person named in the mortgage-deed who is willing and able. If none is named, or all named are unable, unwilling or dead, the mortgagee may appoint any person to whose appointment the mortgagor agrees; failing agreement, the mortgagee may apply to the Court, and a person appointed by the Court is deemed to have been appointed by the mortgagee.

Removal. By writing signed by or on behalf of both mortgagee and mortgagor, or by the Court on the application of either party on due cause shown.

Sub-section (3), the important one. A receiver so appointed is deemed to be the agent of the mortgagor, and the mortgagor is solely responsible for his acts or defaults, unless the deed provides otherwise or the acts or defaults are due to the improper intervention of the mortgagee.

That deeming provision is the point of the section. It gives the mortgagee control of the income without making him a mortgagee in possession, with all the strict accounting duties that role carries under sections 76 and 77.

A worked example

Jayant mortgages his warehouse in Mumbai to a bank for Rs. 60 lakh by an English mortgage, the deed expressly conferring a power of sale without the intervention of the Court. He binds himself personally to repay on a fixed date. He defaults.

Can the bank foreclose? No. Under clause (a) of section 67, only a mortgagee by conditional sale, or an anomalous mortgagee whose terms allow it, may sue for foreclosure.

Can it sue for sale? Yes. Sale is available to every mortgagee except a usufructuary mortgagee and a mortgagee by conditional sale.

Can it sell without going to court? The deed expressly confers the power, and the property was in Bombay at the date of the deed, so section 69(1)(c) is satisfied. Before exercising it the bank must either serve written notice requiring payment of the principal and wait three months after service, or wait until at least Rs. 500 of interest has been unpaid for three months.

Note the trap in clause (a). The English-mortgage route in section 69(1)(a) would not have been available, because it requires that neither party be a Hindu, Muhammadan or Buddhist. It is clause (c), the express power plus the location, that carries this case.

Can the bank sue Jayant personally? Yes, under section 68(1)(a), because he bound himself to repay. But the Court may stay that suit under sub-section (2) until the bank has exhausted its remedies against the warehouse, unless it abandons the security.

Jayant has sold the warehouse to Kavita, subject to the mortgage. The bank may not sue Kavita for the money: the proviso to section 68(1) exempts a transferee from the mortgagor. Its remedy against her is against the property.

The bank wants the rent while it decides. It may appoint a receiver under section 69A, since it has a power of sale under section 69. The receiver is deemed Jayant's agent, so Jayant bears responsibility for his acts, and the bank avoids becoming a mortgagee in possession.

A fire destroys the roof, nobody at fault, and the security becomes insufficient. Under section 68(1)(b) the bank may sue for the money, but only after giving Jayant a reasonable opportunity to provide further security and his failing to do so.

The bank holds three mortgages from Jayant, all overdue, all giving a right to a decree for sale. If it sues on one, section 67A obliges it to sue on all three.

What it does NOT mean

Foreclosure is not available to every mortgagee. Only to a mortgagee by conditional sale, and to an anomalous mortgagee entitled by the terms.

Sale is not available to every mortgagee either. A usufructuary mortgagee as such and a mortgagee by conditional sale as such cannot sue for sale.

A mortgagee of a public utility gets neither. Clause (c) of section 67 bars both for a railway, canal or other work in whose maintenance the public are interested.

Section 68 is exhaustive. The words are "in the following cases and no others".

A buyer of the property is not personally liable. The proviso to section 68(1) exempts a transferee from the mortgagor.

Section 69 is exhaustive too, and in clauses (b) and (c) an express power in the deed is indispensable.

The three-month periods are not alternatives to notice. Under (2)(a) the three months run from service of the notice.

A receiver under section 69A is the mortgagor's agent, not the mortgagee's, unless the deed says otherwise or the mortgagee intervenes improperly.

Distinctions

Quick revision

• Section 67: after the money is due and before a redemption decree or payment, the mortgagee may obtain a decree of foreclosure or of sale.
• Foreclosure: only a mortgagee by conditional sale, or an anomalous mortgagee entitled by the terms.
• Sale: everyone except a usufructuary mortgagee and a mortgagee by conditional sale.
• Neither: a mortgagee of a railway, canal or other public work; and no piecemeal suit on part of the money unless interests were severed with the mortgagor's consent.
• Section 67A: suing on one of several mortgages from the same mortgagor for the same kind of decree obliges him to sue on all that are due.
• Section 68, four cases and no others: a personal covenant; destruction or insufficiency not caused by either party, after a chance to give further security; deprivation of security by the mortgagor's wrongful act; failure to deliver possession where the mortgagee is entitled to it. A transferee from the mortgagor is not personally liable. The Court may stay a suit under (a) or (b) until the security is exhausted.
• Section 69, three cases and no others: an English mortgage where neither party is a Hindu, Muhammadan or Buddhist; an express power and the mortgagee is the Government; an express power and the property was in Calcutta, Madras, Bombay or a notified area at the date of the deed. Then either three months' default after written notice for principal, or Rs. 500 interest unpaid for three months.
• Section 69A: a mortgagee with a section 69 power may appoint a receiver in writing; the receiver is deemed the mortgagor's agent, which keeps the mortgagee out of possession.

Test yourself

1. Which mortgagee may sue for foreclosure? A mortgagee by conditional sale, and a mortgagee under an anomalous mortgage by the terms of which he is entitled to foreclose. No other mortgagee may.

2. Which mortgagees may not sue for sale? A usufructuary mortgagee as such and a mortgagee by conditional sale as such.

3. In how many cases may a mortgagee sue for the mortgage-money? Four, and the section says "in the following cases and no others": a personal covenant to repay; destruction or insufficiency of the security by a cause other than either party's wrongful act, after a reasonable opportunity to provide further security; deprivation of the security by the mortgagor's wrongful act or default; and failure to deliver possession where the mortgagee is entitled to it.

4. Can the mortgagee sue a person who has bought the property from the mortgagor for the mortgage-money? No. The proviso to section 68(1) provides that in the case of a personal covenant a transferee from the mortgagor or his legal representative is not liable to be sued for the mortgage-money.

5. State the three cases in which a power of sale without the Court may be exercised. An English mortgage where neither mortgagor nor mortgagee is a Hindu, Muhammadan or Buddhist or a specified class; an express power in the deed with the Government as mortgagee; and an express power in the deed where the property was, at the date of the deed, in Calcutta, Madras, Bombay or a notified town or area.

6. What must happen before that power is exercised? Either written notice requiring payment of the principal must have been served and default continued for three months after service, or at least Rs. 500 of interest must be in arrear and unpaid for three months after becoming due.

7. Whose agent is a receiver appointed under section 69A, and why does it matter? He is deemed to be the agent of the mortgagor, who is solely responsible for his acts and defaults unless the deed provides otherwise or the mortgagee intervenes improperly. It matters because it lets the mortgagee take the income without becoming a mortgagee in possession and incurring the duties that follow.

8. Why does section 67A exist? To stop a mortgagee holding several mortgages from the same mortgagor bringing a succession of separate suits. If he sues on one and is entitled to the same kind of decree on the others, he must sue on all in respect of which the money has become due.

Section 72: what a mortgagee may spend

A mortgagee may spend such money as is necessary:

(b) for the preservation of the property from destruction, forfeiture or sale; (c) for supporting the mortgagor's title; (d) for making his own title good against the mortgagor; (e) where the property is a renewable leasehold, for renewal of the lease.

He may, absent contrary contract, add such money to the principal, at the rate of interest payable on the principal, or, where none is fixed, nine per cent per annum.

The proviso. Expenditure under clause (b) or (c) is not deemed necessary unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property or support the title. The mortgagor must be given the chance to act first; the mortgagee cannot spend freely and send the bill.

Insurance. Where the property is by its nature insurable, the mortgagee may, absent contrary contract, insure against fire, and the premiums are added to the principal on the same interest terms. But the amount insured must not exceed the amount specified in the mortgage-deed, or, if none is specified, two-thirds of the amount that would be required to reinstate the property on total destruction. And he may not insure at all where insurance is already kept up by or on behalf of the mortgagor to the amount he is authorised to insure for.

Section 73: proceeds of a revenue sale, and acquisition compensation

Sub-section (1). Where the property is sold for failure to pay arrears of revenue, other public charges or rent, and the failure did not arise from the mortgagee's default, the mortgagee may claim the mortgage-money, wholly or in part, out of any surplus of the sale proceeds remaining after the arrears, charges and deductions directed by law.

Sub-section (2). Where the property is acquired under the Land Acquisition Act 1894 or any other compulsory acquisition enactment, the mortgagee may claim the mortgage-money, wholly or in part, out of the compensation due to the mortgagor.

Sub-section (3). Such claims prevail against all other claims except those of prior encumbrances, and may be enforced notwithstanding that the principal money has not become due.

The principle is substitution: when the land is converted into money by an event outside the mortgagee's control, the security follows the money. Sub-section (3) is what makes it useful, since an acquisition rarely waits for the mortgage to fall due.

Sections 74 and 75, on the rights of a subsequent and a mesne mortgagee, were repealed by the amending Act of 1929, and are noted here as repealed rather than explained. Their subject matter is now covered by subrogation under section 92.

Section 76: the liabilities

When the mortgagee takes possession during the continuance of the mortgage:

(a) he must manage the property as a person of ordinary prudence would manage it if it were his own;

(b) he must use his best endeavours to collect the rents and profits;

(c) absent contrary contract, he must pay out of the income the Government revenue, all other public charges and rent accruing due during his possession, and any arrears of rent in default of which the property may be summarily sold;

(d) absent contrary contract, he must make such necessary repairs as he can pay for out of the rents and profits after deducting the payments in clause (c) and the interest on the principal;

(e) he must not commit any act which is destructive or permanently injurious to the property;

(f) where he has insured against fire, he must, on loss, apply the money he actually receives, so far as necessary, in reinstating the property, or, if the mortgagor so directs, in reduction or discharge of the mortgage-money;

(g) he must keep clear, full and accurate accounts of all sums received and spent as mortgagee, and at any time during the mortgage give the mortgagor, at his request and cost, true copies of them and of the vouchers supporting them;

(h) his receipts, or a fair occupation-rent where he occupies personally, must, after deducting the expenses properly incurred for management and collection and the expenses in clauses (c) and (d) with interest, be debited against him in reduction of interest due, and, so far as they exceed the interest, in reduction or discharge of the principal; any surplus is paid to the mortgagor;

(i) when the mortgagor tenders or deposits the amount due, the mortgagee must account for his receipts from the date of the tender, or from the earliest time he could have taken the money out of Court, and may not deduct expenses incurred after that date.

Loss occasioned by default. If he fails to perform any of these duties, he may, when accounts are taken under a decree, be debited with the loss occasioned by the failure.

Clause (h) is the engine of the whole section, and clause (b) is what makes it bite: a mortgagee who does not bother to collect rent is not thereby better off, because clause (h) charges him with a fair occupation-rent where he occupies himself, and the accounting under a decree can debit him with what his neglect cost.

Section 77: receipts in lieu of interest

Clauses (b), (d), (g) and (h) of section 76 do not apply where there is a contract that the receipts from the property shall, so long as the mortgagee is in possession, be taken in lieu of interest on the principal, or in lieu of interest and defined portions of the principal.

This is the usufructuary arrangement, and the exemption follows from it. If the parties have agreed that the income is simply set against interest, there is nothing to collect for the mortgagor, nothing to account for, and no surplus to hand over. The duties that survive are the important ones: prudent management under (a), payment of public charges under (c), no destructive acts under (e), and the proper application of insurance money under (f).

A worked example

Lalita mortgages her orchard at Ratnagiri to Manoj, who takes possession under a mortgage carrying interest at 8 per cent.

The river adds land to one boundary. Under section 70 it becomes part of the security. On redemption it goes to Lalita under section 63.

The revenue authorities threaten to sell the orchard for arrears. Manoj may spend money to preserve it from sale under section 72(b), but only after calling upon Lalita to act and her failing to do so. What he spends is added to the principal at 8 per cent.

He insures the orchard against fire. Permitted, unless Lalita already insures it for the relevant amount. The sum insured may not exceed what the deed specifies, or, if silent, two-thirds of the reinstatement cost.

Fire damages the packing shed and Manoj receives the insurance money. Under section 76(f) he must apply it in reinstating the property, or, if Lalita so directs, in reduction or discharge of the mortgage-money. The choice is hers.

He collects Rs. 6 lakh of fruit revenue in a year. Under clause (h) he deducts the proper management and collection expenses and the payments under (c) and (d) with interest, credits the balance first against interest due, and any excess against the principal. Any surplus beyond the whole debt is paid to Lalita.

He lives in the farmhouse himself and collects nothing for it. Clause (h) charges him with a fair occupation-rent all the same.

He lets the trees go untended and the yield halves. Clause (a) required prudent management and clause (b) his best endeavours to collect. When accounts are taken under a decree, he may be debited with the loss his failure caused.

Lalita tenders the whole amount due on 1 March. From that date Manoj must account for his receipts and may not deduct any expenses incurred afterwards.

Change the arrangement. Suppose the deed had provided that Manoj takes the orchard's income in lieu of interest. Section 77 then switches off clauses (b), (d), (g) and (h): he need not account for the receipts at all. He must still manage prudently, pay the public charges, avoid destructive acts and apply insurance money properly.

What it does NOT mean

Section 70 does not give the mortgagee the accession. It attaches it to the security; sections 63 and 63A return it on redemption.

A mortgagee may not spend at will. Under section 72(b) and (c) the mortgagor must first be called upon and have failed to act.

He may not over-insure. The cap is the deed's figure, or two-thirds of the reinstatement cost, and he may not insure where the mortgagor already does.

Insurance money is not automatically applied to the debt. It goes to reinstatement, unless the mortgagor directs otherwise.

Occupying rent-free is not free. A fair occupation-rent is debited against him.

Section 77 does not exempt him from everything. Only clauses (b), (d), (g) and (h) fall away.

Sections 74 and 75 are repealed and should be described as repealed, not explained.

Distinctions

Quick revision

• s.70 and s.71: accessions and a renewed lease enure to the security, not to the mortgagee's ownership.
• s.72: he may spend to preserve the property, support the mortgagor's title, perfect his own title and renew a leasehold, adding it to the principal at the contract rate or 9%. For (b) and (c) the mortgagor must first be called upon and have failed. Insurance is capped at the deed's figure or two-thirds of reinstatement cost, and is barred where the mortgagor already insures.
• s.73: on a revenue sale he claims out of the surplus; on compulsory acquisition out of the compensation; such claims prevail over all but prior encumbrances and may be enforced though the money is not yet due.
• ss.74 and 75 are repealed.
• s.76, nine duties: prudent management; best endeavours to collect; pay revenue, charges and rent; necessary repairs out of income; no destructive act; apply insurance money to reinstatement or as the mortgagor directs; clear, full and accurate accounts with copies at the mortgagor's request and cost; credit receipts, or a fair occupation-rent, against interest then principal with the surplus to the mortgagor; account from the date of tender and deduct no later expenses.
• Failure means being debited with the loss when accounts are taken.
• s.77: a contract that receipts are taken in lieu of interest switches off clauses (b), (d), (g) and (h) only.

Test yourself

1. A mortgagor builds a house on mortgaged land. Who is entitled to it? For the purposes of the security, the mortgagee, under section 70 and its illustration (b). It becomes part of what answers the debt, and on redemption it goes to the mortgagor under section 63.

2. Before spending money to preserve the property, what must a mortgagee do? Call upon the mortgagor to take proper and timely steps and find that he has failed to do so. The proviso to section 72 says such expenditure is not deemed necessary otherwise.

3. How much may a mortgagee insure the property for? Not more than the amount specified in the mortgage-deed, or, if none is specified, two-thirds of the amount that would be required to reinstate the property on total destruction. He may not insure at all where the mortgagor already keeps up insurance to that amount.

4. The property is acquired compulsorily. What can the mortgagee do? Claim payment of the mortgage-money, wholly or in part, out of the compensation due to the mortgagor under section 73(2). That claim prevails against all claims except prior encumbrances, and may be enforced even though the principal money has not become due.

5. A mortgagee in possession occupies the property himself and pays nothing. How is that treated? Under section 76(h) a fair occupation-rent in respect of the property is debited against him, in reduction of the interest and then of the principal, exactly as if he had received rent.

6. What happens if the mortgagee fails in his duties under section 76? When accounts are taken in pursuance of a decree under Chapter IV, he may be debited with the loss occasioned by his failure.

7. Which duties fall away where receipts are taken in lieu of interest? Clauses (b), (d), (g) and (h) of section 76, that is best endeavours to collect, necessary repairs out of income, keeping and producing accounts, and crediting receipts. The rest continue to apply.

8. Insurance money is received after a fire. Who decides how it is used? It must be applied in reinstating the property, unless the mortgagor directs that it be applied in reduction or discharge of the mortgage-money. The direction is the mortgagor's to give.