Sale Defined, and How a Sale Is Made
Chapter Twenty-Seven
Syllabus topic 2.1, "Specific Transfers under the Transfer of Property Act, 1882: Sale [Sections 54 - 57]"
Pages 139 to 143 of 378
In one line
A sale is the transfer of ownership for a price, and above a hundred rupees the only way to make one is a registered document.
In exam wording: section 54 provides that "sale" is a transfer of ownership in exchange for a price paid or promised, or part-paid and part-promised; that in the case of tangible immovable property of the value of one hundred rupees and upwards, or of a reversion or other intangible thing, the transfer can be made only by a registered instrument; and that a contract for sale does not of itself create any interest in or charge on the property.
Why the section matters more than its length suggests
Section 54 is short and it decides three separate questions that students routinely run together.
What a sale is, which separates it from a gift, an exchange and a mortgage.
How a sale is made, which is where the registration requirement lives and where most transactions go wrong in practice.
What an agreement to sell is not, which is the sentence that defeats the belief, very widespread in India, that paying most of the price and holding the keys makes a person the owner.
Sale defined, broken down
"A transfer of ownership." The whole interest of the seller passes, not a lesser one. That is what separates a sale from a lease, which transfers a right to enjoy, and from a mortgage, which transfers an interest as security.
"In exchange for a price." Price means money. This is the line between a sale and an exchange: if the consideration is other property rather than money, it is an exchange under section 118, taught in [Exchange]. If there is no consideration at all it is a gift under section 122.
"Paid or promised, or part-paid and part-promised." The price need not be paid at the time. A sale where the whole price is left outstanding is still a sale, and the seller's protection is the statutory charge for unpaid purchase money in section 55(4)(b), taught in the next chapter.
So the three essentials are: parties competent under section 7, property transferable under section 6, and a price in money.
How a sale is made
This is the part that is examined most, and section 54 lays down three rules.
One, tangible immovable property of one hundred rupees and upwards, and a reversion or other intangible thing of any value: only by a registered instrument. There is no alternative. Delivery of possession does not do it, and neither does a written but unregistered document.
Two, tangible immovable property of a value less than one hundred rupees: either by a registered instrument or by delivery of the property.
Sale Defined, and How a Sale Is Made
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.
Sale Defined, and How a Sale Is Made
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.
Sale Defined, and How a Sale Is Made
Distinctions
| Sale, s.54 | Agreement to sell | |
|---|---|---|
| What it does | Transfers ownership | Promises a future transfer |
| Interest created in the property | The whole of the seller's | None, s.54 last line |
| How it must be made | Registered instrument, at Rs. 100 and above | A contract; registration is needed for a s.53A defence since 2001 |
| Remedy for breach | Ordinary remedies of an owner | Specific performance, or damages |
| Sale | Exchange, s.118 | Gift, s.122 | |
|---|---|---|---|
| Consideration | A price in money | Other property | None |
| Ownership transferred | Yes | Yes, both ways | Yes |
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.
Sale Defined, and How a Sale Is Made
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.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.