TRANSFER OF AN ACTIONABLE CLAIM

Submitted in partial fulfilment of the requirements

for the award of the degree B.Com., LL.B. (Hons)

Submitted by

KRISHNA B.A
BC0150010
Submitted to

Professor SYED ANSARI

TAMIL NADU NATIONAL LAW SCHOOL

TIRUCHIRAPPALLI 620 009

SEPTEMBER, 2017
 Declaration

I, Krishna B.A do hereby declare that the case analysis entitled

TRANSFER OF AN ACTIONABLE CLAIM submitted to Tamil
Nadu National law school in partial fulfilment of requirement of award
of degree in undergraduate in law is a record of original work done by
me under the supervision and guidance of Professor SYED ANSARI,
department of Law, Tamil Nadu National law school and has not formed
basis for award of any degree or diploma or fellowship or any other title
to any candidate of any university.

Krishna B.A

B.Com.,LL.B (Hons)
 Certificate

This is to certify that the case analysis entitled TRANSFER

OF AN ACTIONABLE CLAIM submitted to Tamil Nadu National
law school in partial fulfillment of requirement of award of degree of
under graduate in Law done by Krishna.B.A under the supervision and
guidance of Professor Syed Ansari, Department of Law, Tamil Nadu
National Law School.

Prof. Syed Ansari ( )

Place : Tiruchirappalli
 ACKNOWLEDGEMENTS

At the outset, I take this opportunity to thank my Professor Syed

Ansari from the bottom of my heart who has been of immense help
during moments of anxiety and torpidity while the project was taking its
crucial shape.
Thirdly, the contribution made by my parents and friends by
foregoing their precious time is unforgettable and highly solicited.
Their valuable advice and timely supervision paved the way for the
successful completion of this project.
Finally, I thank the Almighty who gave me the courage and
stamina to confront all hurdles during the making of this project. Words
arent sufficient to acknowledge the tremendous contributions of various
people involved in this project, as I know Words are Poor Comforters.
I once again wholeheartedly and earnestly thank all the people who
were involved directly or indirectly during this project making which
helped me to come out with flying colours.
 Research Methodology

The research methodology used in this project is analytical and

descriptive. Data has been collected from various materials, journals and
web sources. This project has been done after a thorough research of
materials from various sources and analysing the information carefully.
INTRODUCTION

What is property? Generally the term property is used to describe anything that is owned by any
person or an entity.1 Thus property is anything that can be held or owned by a person.

Property law is the law which regulates the buying and selling of movable and immovable property.
In India, the dealings in property are regulated by the Transfer of Property Act, which was passed in
1882. The Act is an exhaustive code which has defined all kinds of dealings in properties, the rights,
duties and liabilities in detail.

There is a need for law regulating the buying and selling of property because property is an integral
element of a humans legacy these days as everybody has ownership over something movable or
immovable or tangible or intangible of some value which requires protection. Generally, the term
property does not include not just the asset of value, but also the rights and liabilities regarding the
property. The term property thus includes both the asset physically and the rights associated with the
owner regarding the asset.2

ACTIONABLE CLAIM

Section 3 of the Transfer of Property Act defines an actionable claim.

According to Section 3 of the Transfer of Property Act, an actionable claim is a claim to any debt
other than a debt secured by mortgage of immovable property or by hypothecation or pledge of
moveable property, or to any beneficial interest in moveable property not in possession either actual
or constructive, of the claimant, which the civil courts recognize as affording grounds of relief
whether such debt or beneficial interest be existent, accruing or conditional or contingent.3

An actionable claim is considered to be a species of property which is transferable and can be owned.

In short, an actionable claim can be considered as anything that is a claim to an unsecured debt or a
claim to any beneficial interest in movable property not in possession of the claimant.4 An actionable
claim is anything on which a claim can be initiated in any court of relief. It can be inherited and
transferred by sale, mortgage and gift, just like other property. Transfer of this claim either by sale,
mortgage or gift can be completed by simply execution of an instrument in writing to this effect. Such
instrument does not need to be registered.5 An actionable claim can be understood to be incorporeal

1
http://legal-dictionary.thefreedictionary.com/property
2
Lectures in Jurisprudence by NK Jayakumar, Third Edition, Page number 279.
3
http://serialsjournals.com/serialjournalmanager/pdf/1332139475.pdf
4
https://www.slideshare.net/gagan555/topic-3-actionable-claim
5
http://www.ipropertybook.com/bnm/actionable-claim/
personal property which can be of any type which is an interest in a corporeal property which is not
currently in the possession of the owner.

WHAT ALL ARE CONSIDERED TO BE ACTIONABLE CLAIMS?

From this we have been able to understand that an actionable claim is anything but property which
can be held like any other property. But a basic understanding as to what is an actionable claim must
be obtained in order to ascertain what all can be constituted as an actionable claim.

Generally, the following are considered to be good examples of actionable claims. They are:

Claim for arrear rent;

Claim for rent to fall due in future.
An option offered to repurchase the property once sold.
Benefit of a contract giving option to purchase the land.
When a contract for purchase of goods is endorsed by the purchaser, by writing on the back of
the contract under his signature that he has sold all his rights and interest in the goods
purchased under the said contract to a certain person who is named and properly identified in
such endorsement.6

The following are considered to be good examples of actionable claims.

However there are certain instruments considered to be actionable claims but in reality are not
considered to be actionable claims. These are:

A claim which is decreed.

Relinquishment of interest of a member retiring from joint Hindu Family business in favor of
the members who continue to be co-parceners of the same.
Right to Sue, though it is a right but not an actionable claim.
A claim for main profits.

In essence, an actionable claim, under section 3 primarily includes

1. An unsecured money debt.

2. A claim in the beneficial interest in the movable property not in possession of the claimant.7

In English law relating to property, an actionable claim or a chose in action is not only concerned
with immovable property. It is considered to be a claim relating to a simple debt for which there is no
security in immovable property.

6
http://www.ipropertybook.com/bnm/actionable-claim/
7
Section 3 of the Transfer of Property Act, 1882.
CONDITIONS FOR A VALID ACTIONABLE CLAIM

1. UNSECURED MONEY DEBT

There are 2 conditions for a debt to be a valid actionable claim. Since an actionable claim is a debt
obligation, there should primarily be a debt which should be payable in the future. It should be an
unsecured debt which can be acted upon in the future provided the debt is

a. Existent debt
b. Conditional on the performance or non performance of a condition
c. Contingent.

2. CLAIM IN THE BENEFICIAL INTEREST IN THE MOVABLE PROPERTY NOT IN THE

POSSESSION OF THE CLAIMANT.
It is the right of a person to take the possession of movable property from that of another, is
the actionable claim of that person who is the claimant who has a beneficial interest in that
particular property .
The conditions to be fulfilled are:
a. The claim in some movable property
b. The movable property is in possession of another person
c. The beneficial interest or the right of possession of the claimant must be recognised by a
Court of law.

An important question in recent times was regarding whether promissory notes can be assigned and in
the case of Mulji Mehta & Sons v C Mohan Krishna8, it was held that there cannot be an assignment
of a promissory note, an assignment of a debt can be considered to be valid.

8
AIR 1997 AP 153
TRANSFER OF AN ACTIONABLE CLAIM

Now that what is an actionable claim is established, the conditions necessary for the transfer of an
actionable claim must be known so as to understand the nature of the transaction. In the Transfer of
Property Act, the transfer of an actionable claim is dealt in Sections 130 to 137 provide for the
transfers of actionable claims.

Section 130 deals with what all constitute a valid transfer of an actionable claim.

Section 130 entails that the transfer of an actionable claim, irrespective of consideration is valid only
if it is done by the execution of an instrument in writing signed by the transferor or his duly authorised
agent. It shall be effective from the date of execution of the instrument and all the rights and remedies
will vest in the transferee thereon, provided that every dealing with debt or other actionable claims by
the debtor on the instrument, for the abovementioned is entitled to recover or enforce other actionable
claims valid against the transfer.9

Clause 2 of Section 130 talks about the right of the transferee to institute proceedings for the
actionable claim in his own name without obtaining the transferors consent and making him a party
thereto.10

From the statute, we are able to understand the following about the transfer of an actionable claim:

The transfer of an actionable claim is valid only if the transfer is brought into effect through a
written instrument signed by the transferor. Consideration is irrelevant.
The Actionable claim is considered to be valid against any dealing with regard to the
actionable claim and the transferee is entitled to recover or enforce other actionable claims
valid against the transfer.

The proviso in Section 130(1) is intended for the benefit of the debtor and he is protected when he
pays the debt without notice of the transfer.11 The written instrument assigning a debt can be in any
form, if the intention to transfer is clear. A mere letter to the assignee by the claimant that he has
assigned the debt to him is sufficient.

The Section does not prevent the assignment of a part debt.

In the case of Doriaswami Mudaliar v D.K. Aiyangar12, it was held that:

9
Section 130 of the Transfer of Property Act.
10
Section 130 of the Transfer of Property Act
11
Law of Transfer of Property by Vepa P.Sarathi, Fifth Edition, Page number 295.
12
AIR 1925 Mad 753.
(1) Even though Sec. 130 does not prescribe any language or wording of transfer, form the language
used, the intention must be clearly discernible;

(2) The whole of the debt/beneficial interest must be transferred, a part cannot be transferred, as a
single cause of action will be split up into a number of causes of action; and,

(3) The letter of transfer must be addressed to the transferee.13

Section 130 however, has an exception. A gift of immovable property by a Muslim does not require a
document because of the applicability of Section 129. However, a gift of an actionable claim by a
Muslim must comply with the requirements of Section 130.14

The reason for this is due to Muslim law on gift being based on tradition. But for an actionable claim,
their personal property will not apply.

The provisions of Section 130 does not apply to cases involving marine or fire insurance policies.

Section 131 of the Transfer of Property Act stipulates that every notice of the transfer of an actionable
claim shall be in writing which must be signed by the transferor or the agent who was duly authorized
to act on behalf of the principal or transferor. In case the transferor refuses to sign, the instrument
shall state the name and address of the transferee. The notice must be express in writing and it must
state the name and address of the transferee. These conditions must be fulfilled for making the
instrument valid.

Thus we can conclude that a valid notice must contain the following:

a. It shall be in writing
b. It shall have the name and address of the transferee
c. It shall be signed by the transferor or his duly appointed agent
d. If the transferor refuses to sign, by the transferee or his agent.

CASE LAW:

NAME OF THE CASE: Hunsraj v Nathoo

CITATION: (1970) 9 Bom LR 838.

DECISION:

In this case, the instrument transferring the actionable claim did not have the required name and
address of the transferor. The instrument transferring the actionable claim was held to be invalid by

13
https://sol.du.ac.in/pluginfile.php/4577/mod_resource/content/1/Document15-1.pdf
14 14
Law of Transfer of Property by Vepa P.Sarathi, Fifth Edition, Page number 295.
the Bombay Court. Hence, it is established that the signature or the name and address of the transferor
must be present in the instrument transferring the actionable claim. It is a statutory condition that must
be fulfilled for the instrument transferring the actionable claim to be valid.

It is also understood that the rights of the transferee is not dependent on the notice. He gets the rights
upon the execution of the instrument of transfer.

Furthermore, there is no time limit for giving the notice. A period of one year was considered to be
reasonable in Sadasook Ramopratap v Hoar Miller & Co.15

SECTION 132 OF THE TRANSFER OF PROPERTY ACT, 1882.

Section 132 of the Transfer of Property Act deals with the liability of the transferee after the
actionable claim is transferred to the transferees name. Section 132 states that The transferee of an
actionable claim shall take it subject to all the liabilities and equities and to which the transferor was
subject in respect thereof at the date of the transfer.16

The liability of the transferee is the same as that of the transferor. It means that the assignee can get
no better title than the assignor and this principle is also applicable to Court sanctioned sale of
property.

In the case of Ram Bhaj v Ram Das17, it was held that this rule extends to an assignee that has
purchased at a Court Sale.

A debtor who is being sued by the assignee of his creditor is entitled to set off a debt due to him by
the assignor on a transaction independent of the debt assigned.18

SECTION 133 OF THE TRANSFER OF PROPERTY ACT, 1882.

Section 133 of the Transfer of Property Act deals with the solvency of a debtor. The section states that
where the transferor of a debt wants a justification for the solvency of a debtor. Unless there is a
contract to the contrary, then it applies only on the time of transfer and is limited to the value of the
consideration

In other words, it means that the assignor is not bound to give any warranty regarding the solvency of
the debtor. But if he does, it means that the debtor was solvent at the time of transfer. This also limits
the liability of the transferor only to the quantum of consideration.19

15
(1923) 27 CWN 733
16
Section 132 of the Transfer of Property Act, 1882.
17
(1922) 3 Lah 1414.
18
Arunachellam v Subramania (1907) ILR 30 Mad 235,
19
Transfer of Property Act by S.N. Shukla, Page 548.
SECTION 134 OF THE TRANSFER OF PROPERTY ACT

Section 134 of the Transfer of Property Act deals with the transfer of a mortgaged debt. The Section
hints that the transfer of an actionable claim can not only be made by way of mortgage but also by
way of mortgage. The Section dictates that if a debt is transferred for the purpose of securing an
existing or future debt. The debt transferred if received by the transferor or recovered by the transferee
must be applied for two purposes:

a. Of costs of realisation of such transactions.

b. For the satisfaction of the amount secured by the transfer and the remainder belongs to the
transferor.20

An assignment is nothing but the transfer of rights and interests which accrue by virtue of a debt are
transferred from one person to another person, it is called as an assignment. This is generally seen in
banking transactions. Some people transfer Insurance and bills as security and transfer them in the
name of the bank.21

It is well known that a debt may be assigned by way of securities.22 For example, a right to rent to fall
due in future is an actionable claim which may be the subject of a mortgage.23

An assignment can be made by drafting a formal document or any other written form. The only
prohibition is that it should not be done orally.24 An actionable claim can be assigned to anybody apart
from those persons mentioned in Section 136 of the Act.

In the case of Chidambaram Pillai v Doraiswami Chetty, the position and the meaning of the statute
was explained. In the case, it was held that the if a transfer has been effected under Section 130, then
all the rights of the transferee is vested in the transferor including the right of ownership. Section 134
is enforced in case where there is any residue after satisfying the debt, then the owner is entitled to the
residue.

In the case of Mulraj Khatau v Vishwanath25, the Privy Council rejected the contention that the
condition of assignment under Section 130 refers only to a transfer of absolute rights and not a charge.

SECTION 135 OF THE TRANSFER OF PROPERTY ACT.

Section 135 deals with the assignment of rights under policies of insurance against fire.

20
Transfer of Property Act by S.N. Shukla, Page 549.
21
https://www.bankingschool.co.in/knowledge-capsule/important-banking-laws/laws-related-to-security-
offered-to-banks/assignment-and-actionable-claim/
22
The Transfer of Property Act, 12th edition by Sir Dinshaw Fardunji Mula, Page 1040.
23
Held in the case of Santa Bai v Trust of India Assurance Company Limited, AIR 1945 Bom 11
24
https://advocateselvakumarblog.wordpress.com/2015/03/24/actionable-claim/
25
(1913) ILR 37 Bom 198, 40 IA 24, 17 IC 627.
The section tells us that these policies are an exception to the general rule as they cannot be assigned
without a transfer of the property that is insured. Hence they constitute an exception because in the
previous cases, the right regarding the actionable claim was transferred even without the transfer of
the ownership of the property as it was an actionable claim. But in this case, the rights cannot be
assigned unless the transfer of the property insured takes effect. However, a marine policy can be
assigned.

The statute uses the word absolutely vested. The person who is being assigned is a direct
beneficiary of the policy and is entitled to receive the sum. The kind of assignment of insurance
policies sanctioned sometimes creates a vested interest instead of an absolute interest in the property.
26

In the case of Panmal v Oriental Fire and Insurance Company27, the Guwahati High Court held that
where the assets of a partnership are insured and if the firm is subsequently is dissolved, one of the
partners cannot sue for recovery of the damages unless the policy is assigned in his favour.

SECTION 136 OF THE TRANSFER OF PROPERTY ACT.

Section 136 of the Transfer of Property Act deals with the incapacity of officers connected with the
Courts of Justice. This section of the Act essentially dictates that any person who comes within the
ambit of the words Officers of the Court of Justice shall buy, or agree to receive any share or interest
in any actionable claim.

The Section essentially bars any person in legal capacity in the Court such as a judge, an advocate or
any other person who can be considered as an officer of a Court from dealing in the transfer of
actionable claims. The main object behind this provision is to prevent the officers of a court from
using their position by virtue of which they know because of their position as a legal practitioner or a
judge.28 However this incapacity extends only to another persons actionable claims. This means that
the officers of Court are incapacitated from buying and selling the actionable claims of other people.
However, they are not incapacitated from buying and selling their own actionable claims.

However this provision is not applicable to actionable claims in the nature of stocks, shares and
debentures. It also does not extend to a transfer of movable property or a mortgage.29

The word buy in the Section does not refer to purchases at Court sales as Section 136 is subject to
Section 2(d).30

26
www.indiacomlaw.wordpress.com
27
AIR 1979 Gau 70
28
The of Property Act, 12th edition by Sir Dinshaw Fardunji Mulla, Page 1042
29
Transfer of Property Act by S.N. Shukla, Page 549.
It has been held in the case of National Insurance Company v Haridas Basu31 that the purchase of a
life insurance policy by a pleader at a Court sale is valid.

A pleader in a Court was not held to be an officer of the Court and are not restricted or stopped from
purchasing property sold in an execution. But the Courts were not in favour of such purchases even
though such purchases were not illegal.32

The prohibition is said to apply irrespective of whether a suit has been filed on an actionable claim
and after a suit offends a public policy more than the purchase of such a claim before a suit.33

SECTION 137 OF THE TRANSFER OF PROPERTY ACT, 1882.

Section 137 has been enacted with the objective of protecting or saving of negotiable instruments.
Nothing in the above sections apply to negotiable instruments .These negotiable instruments include
stock shares and debentures which are negotiable either through custom, law is negotiable or a
mercantile document of title to goods.34

Document of title of goods include any document includes a range of such documents such as

i. Bill of lading
ii. Dock-warrant
iii. Warehouse-keeper's certificate
iv. Railway receipt
v. Warrant or order for the delivery of goods

In simple words, document of title of goods include document which can be or is used as a proof of
possession or control of goods. This document can also include authorising or purporting to authorise
which is done either buy endorsing or by delivery to the person possessing such a document to
transfer or receive the goods which is represented by the document.35 This provision is in favour of
parties dealing in negotiable instruments.

In the case of Bechuanaland Exploration Co. v. London Trading Co36, it was held that even bearer
debentures were now considered to be negotiable instruments in the eyes of law.

Over the years in many cases, many instruments used in financial transactions have been considered
to be instruments.

30
The of Property Act, 12th edition by Sir Dinshaw Fardunji Mulla, Page 1043.
31
(1927) 46 Cal LR 225.
32
Nundeepat Mehta v Urquhart (1870)
33
Muni Reddy v Venkata Row (1914) ILR 37 Mad 238, 17 IC 544.
34
Section 137 of the Transfer of Property Act, 1882.
35
Transfer of Property Act by Avtar Singh, 2nd edition, Page number 451.
36
(1898) QB 658.
In the case of an ordinary receipt, it has been held that an endorsement and transfer of the document is
enough to complete the transfer. A document for the transfer is not necessary.37

In the case of shares, assignment of shares can be made by sale, mortgage or pledge.

In the case of Shatzadi Begum v Giridharlal38, it was held that in the case of mortgage of shares, the
right to enjoy is present but in the case of a pledge, no such right is present.

37
Held in the case of GG in C v Jayanarayan AIR 1948 Pat 36
38
AIR 1976 AP 273.
CONCLUSION

It is very lucidly understood that actionable claims are considered and treated as one of the species of
property. It is clearly understood that actionable claims are also treated as a species of property and
therefore is transferable. The transfer of an actionable claim is unique because an actionable claim is
not physical property such as land or building itself. An actionable can be understood to be a species
of property which is transferable like any other property. This is a unique species of property which is
property other than any property which is:

It is not a debt secured by a mortgage of immovable property,

Or a property which is a pledge on any movable property.
Or any beneficial interest in any movable property which is not in possession of the
claimants.

It is also very important that a court must realise this particular type of property unlike the transfer of
other properties. This is because this type of property is generally provided on the grounds of relief to
the claimant. Hence it is imperative for a Court to recognise this kind of property. This is done to
protect the interests of the claimant in the property. Since the claimant gets the property and the rights
associated with the property, it is essential that he gets justice as the property is being transferred due
to the default of the transferor.

It can also be inferred that the transfer of an actionable claim is done in order to pay the debt of the
transferor. On a fundamental level, actionable claims can be considered as those claims which can be
enforced by the Courts.

It is also very clearly understood that a notice is required according to Section 131 and it is essential
that the notice must be in writing and the notice must include the notice of the transfer of an
actionable claim shall be in writing which must be signed by the transferor or the agent who was duly
authorized to act on behalf of the principal or transferor. In case the transferor refuses to sign, the
instrument shall state the name and address of the transferee. This is an essential condition for making
the transfer of an actionable claim legally valid. If any of these conditions are not followed, then the
notice will not be considered to be invalid in the eyes of law.

The liability of a transferor is just like any other transfer of property being enforced. The rights and
liabilities of the transferee is shifted to the transferor just like property rights being transfer ted in a
normal transfer of a piece of property. If the transferee left a charge on the property, then the charge
will also be transferred along with the other property related rights and is also subject to equities.
An actionable claim can also be assigned to another natural or legal person. It is widely understood
that such assignments take place in case of banking transactions where loans are taken. It is also the
understanding of the researcher that people even use insurance policies to take loans.

Anyone who comes under the purview of the word Officers of the Court will not be allowed to
transact in the transfer of an actionable claim. This is to avoid such people who are privy to sensitive
information which is not available to the persons apart from such designated persons. However, the
exception to this rule is available. This section only prohibits officers of Court from dealing with
outsiders. It does not prohibit them from dealing with their own actionable claims.

The Sections of the Act dealing with the transfer of actionable claims is not applicable to negotiable
instruments such as shares and debentures.

An actionable claim is a unique and important type of property which deals with a species of property
that is not material for the transfer of the rights regarding it. It is the humble opinion of the researcher
that an actionable claim is an important species of property which in the opinion of the researcher is
an important case which shows the development of property and the legal position regarding it. Like
all other areas, even this area of law is also constantly evolving and this unique concept is a testament
to that. Since property is an important aspect of society and with the advent of the concept of artificial
persons, the law regarding the transfer of property has developed to the extent of transferring the
rights regarding the property. An actionable claim is the proof of such development.