Some Important Notes on Contract for Sale of Immoveable Property from The Transfer of Property Act.
1. A contract for the sale of immovable property differs from a contract for the sale of goods, in that the court will grant specific performance of its unless special reasons to the contrary are shown.
2. The definition of contract for sale includes the settlement of the terms between the parties as one of the essentials for completion of a contract.
3. It is not within the competence of the guardian of a minor to bind the minor by a contract for the purchase of land; and as there is want of mutuality, the minor on attaining majority cannot obtain specific performance of the contract.
4. Otherwise, a contract for the sale of land is subject to the general rules applicable to all contracts; and this and other sections of the Act are taken as part of the Contract Act-(see s 4 above). There is no requirement of law that an agreement or contract of sale of immovable property should only be in writing. However, heavy burden lies on the party relying on such oral agreement to prove that there was consensus ad idem the parties for a concluded oral agreement for sale of immovable property and that vital and fundamental terms for sale of immovable property were concluded between the parties orally and a written agreement if any to be executed subsequently would be a formal agreement incorporation the terms already settled by the oral agreement.
5. A contract for sale by a minor is void, but a contract for sale to a minor is valid. (See note under s 6(h) ‘Minor as transferee.’) Incidents peculiar to the sale of land are the subject to s 55.
Contract for Sale does not create any interest: The law of India does not recognize equitable estates, and the English rule that the contract makes the purchaser owner in equity of the estate does not apply. The Supreme Court has now held, settling a conflict of decisions that a contract for sale does not create any interest in land. Hence, the Privy Council have held that apart from s 53A, ‘an averment of the existence of a contract of sale, whether with or without an averment or possession following upon the contract, is not a relevant defence to an action for ejectment in India’.
6. A person who has contracted to buy land is not the owner of any interest in the land and is, therefore, not competent to apply to set aside an execution sale of the same land.
7. Similarly, he is not entitled to mesne profits.
8. It has also been held that even after a decree has been passed in a suit for specific performance, the purchaser has no interest in the property.
9. Section 54 of the Acts specifically provide that the contract of sale does not, of itself create any interest in or charge on immovable property which is subject matter of contract of sale.
10. A person having an agreement to sell in his favour does not get any right in the property except the right of litigation on that basis.
11. Where a landholder is prohibited from transferring the land with effect from a certain date under the local Tenancy Act, a transfer of the land subsequent to that date is void. The fact that agreements for the sale of such land were entered into before the specified date, is of no consequence. Such agreements do not create any right or interest in the property.
12. A contract of sale creates no interest in the property. The equitable doctrine of English law has no application in India.
13. A contract of sale of immovable property does not create any interest in, or charge on, such property. Property agreed to be sold was compulsorily acquired in a case in Punjab. The vendee sued for specific performance of the contract. It was held that he was not even entitled to the compensation awarded in respect of such property under the Transfer of Property Act though he could claim other remedies of lien or charge under the law.
14. A contract for sale is, therefore, merely a document creating a right to obtain another document and does not require registration.
15. Where the Registrar of Assurances declined to register the sale deed, executed in favour of the nominee of a party in whose favour the contract for sale was earlier made and who had signed the sale deed as a confirming party on the ground that the confirming party had acquired some interest or benefit in the land in question and ought to file Income-Tax Clearance Certificate as provided under S 230-A of the Income-Tax Act 1961, it was held that since the confirming party was not the owner of the property and had not acquired any right, title or interest in the property on the strength of mere agreement to sell the property the question of this obtaining income tax clearance certificate under S 230-A of the Income Tax Act did not at all arise.
16. Agreement to Sell Trees standing on a Land :–-An agreement relating to the sale of Deodar, Kail and Rai trees showed that the parties neither knew the number of trees sold, not the identity of the trees owned. Though the land had been identified by Khasra numbers, its actual demarcation was not known.
Clause 1 of the agreement clearly showed that the ownership in respect of each had yet to be ascertained. Only the price of the different kinds of various girth wag being settled.
Clause 2 repeated the same fact by stating ‘whatever trees of whichever kind are found.’ It was not known as to how many trees were of Deodar, and how many were of Kail or Rai.
Clause 3 of the agreement showed that the trees had still to be identified, and to be got marked from the forest department. The revenue department had to identify and sanction their felling and cutting. This had got to be done by the sellers as well as the buyers the purpose of buying these trees was not only to cut them, but also to take them away for sale. It was held, that the agreement in question was not a sale, but only an agreement to sell. The facts indicated that the contract was for the sale of unascertained goods. Even if it is assumed for the sake of argument that the agreement in question was for the sale of specified goods, the trees were not in a deliverable state unless and until the girth of each tree was measured, the forest department marked it as fit for cutting and the revenue department identified and gave permission for felling and cutting. The requisite permission for various departments could be obtained only by the owners.
17. It has, however, been held in some cases that though a contract of sale does not, of itself, create an interest in property, there is transfer of ownership, when, in addition, a part of the purchase price has also been paid. Humbly These decisions are not correct, for ownership can pass only on registration or delivery of possession.
The concept of two classes of ownership – legal and equitable – is alien to Indian law, which recognises only one owner. However, many of the English equitable principles have taken statutory form in India. From the ultimate paragraph of s 54 and the ultimate and penultimate paragraphs of s 40, it is clear that though a contract for the sale of immovable property does not create an interest in, or a charge on, the property, it creates an obligation annexed to the ownership of the property which may be enforced against a transferee without notice or a voluntary transferee.
18. In the absence of registered sale deed, nobody can call himself as owner by purchase on the basis of agreement to sell and the power of attorney executed by the alleged vendor in favour of the prospective purchaser-cum-attorney.
19. Possession –Even after the contract to sell, title clearly resides in the vendor, and even though the proposed vendee has taken possession, his possession is under the contract and is, therefore, clearly permissive. Possession to be adverse, must be possession by a person who does not acknowledge the owner’s title, but denies the same. Therefore, where the origin of possession of the proposed vendee is proved to be permissive, it will be presumed to be so unless and until something happened to make it adverse.
20. Attachment: There was a conflict of decision as to whether the obligation created by a contract for sale will prevail over claims enforceable under an attachment.
The matter is however set at rest by the Supreme Court holding that a sale deed having been executed prior to attachment before judgment, though registered subsequently will prevail over attachment before judgment. The Supreme Court has gone even to the extent that not only a sale deed but even an agreement of sale will prevail over attachment before judgment made subsequent to such agreement of sale.
21. Equities of person contracting to buy:– If the transaction is still in the stage of contract, the buyer, even if he has paid the price or part of the price and even if he has taken possession, is not the owner and the property is still in the seller. But these circumstances may give rise to equities in favour of the buyer. A buyer who has paid the price or part of the price in anticipation of a conveyance is entitled under s 55(6)(b) to a charge on the property for the amount paid. If the contract is still capable of specific performance, the buyer may file a suit for specific performance and complete his title. If the buyer is in possession in pursuance of the contract, he is protected from dispossession by the right enacted in s 53A. But if s 53A does not apply ‘an averment of the existence of a contract of sale, whether with or without possession following upon the contract, is not a defence to an action for ejectment in India.
22. Estoppel :An admission that land has been sold will not operate as an estoppel so as to do away with the necessity for a registered conveyance. Title to land will not pass by mere admission when the Act requires a conveyance. 85
23. Mahomedan law:- The exception in favour of rules of Mahomedan law in s 2(d) only refers to such rules as differ from the general rules contained in Chapter II. But s 54 occurs in Chapter III and therefore applies to Mahomedans.
24. Under the Mahomedan law rule, the execution of an instrument of sale is in no case necessary and the sale becomes absolute on payment of price and delivery of possession but the section renders this rule obsolete where the Act is in force. In cases where the Mahomedan right of pre-emption is claimed, there was a conflict of judicial opinion as to whether the right arises when the sale is complete under Mahomedan law or only when it is complete under the provisions of this section. The rule generally applied was that it was the intention of the parties which determined the system of law applicable, and the date when the sale can be said to be complete, and this rule had been approved by the privy Council.
The Supreme Court has, however, concluded the question and held, approving the dissenting judgment of Mahmood, J in Janki v Girjadat, that if the Transfer of Property Act was in force, no sale could be said to be complete unless the provisions of s 54 were complied with, regardless of the intention of the parties. There was no justification for importing any rule of personal law to override the express provisions of the Act.
The transaction called the hiba-bil-iwaz of India has been held to be a sale, so that if the property is immovable property of the value of Rs 100 or upwards it must be effected by a registered instrument. It has been held in Oudh that a hiba-bil-iwaz by which a Mahomedan transfers property to his wife in satisfaction other dower debt is not a sale and that all cases of hiba-bil-iwaz are not necessarily sales.
A gift in lieu of dower debt cannot be held to be valid, dower debt being a debt payable by husband to wife, a in as much as repayment of dower debt being consideration, no property can be transferred by way of a gift in lieu thereof.
25. Reconveyance:– It is true that it is customary to include a recital regarding the agreement of re-conveyance in the sale deed itself. But where there was an agreement preceding the sale deed and that agreement contained such a clause, and a sale-deed was executed consequent thereto, the absence of reference to the agreement of re-conveyance in the sale-deed would not, lead to the inference that the said right was given up by the plaintiff, executant of sale deed. Unless there is a detailed plea and also evidence that before execution of the sale deed there was novation, and parties expressly agreed to give a go-bye to the agreement of re-conveyance, no inference would be drawn that the agreement of re-conveyance contained in the agreement of sale which preceded the sale-deed was given go-bye.
26. In a case the question arose about the genuineness of the document of a re-conveyance in respect of two properties. The sale deed did not contain any stipulation about the re-conveyance, however subsequent deed for re-conveyance was executed by the agent of the purchaser. The seller expressed the absence of stipulation of re-conveyance in the sale deed as per the advice given by their legal advisor. Further, the existence of re-conveyance deed was supported by a letter returned by seller to the purchaser besides, the parties re-conveyed the one of the two properties within the time limit fixed under the deed of re-conveyance and for the same amount as stipulated in the re-conveyance deed. It was held that the re-conveyance deed was genuine.
27. In a case, it was found that the sale deed is in reality not an out and out sale, but is an anomalous mortgage, and the agreement to sell is in reality a supplement to the anomalous mortgage and it was agreed between the mortgage of the one side and the mortgagee on the other that the amount of loan would carry interest at the rate of 18 per cent per annum, and in pursuance of which agreement the possession of the suit property was delivered to mortgagee, and it was further agreed between them that after completion of five years, the accounts would be settled and on payment of balance amount, if any the mortgagee would re-convey and re-deliver the possession of suit property to the mortgagers.