SALE OF IMMOVABLE PROPERTY 1

SALE
Submitted by
Prashant Shukla

Roll No.: - 164140049

Class: - B. Com LLB 5th Semester
Of
Faculty of Law

Dr Shakuntala Misra National

Rehabilitation University
Lucknow
In
10/2018
Under the guidance of
DR GULAB RAI
(ASSISTANT PROFESSOR)

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ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my Ass. Prof. Dr Gulab Rai, who
gave me the golden opportunity to do this wonderful topic Sale of Immovable Property,
which also helped me in doing a lot of Research and I came to know about so many new things
I am really thankful to them.

PRASHANT SHUKLA

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TABLE OF CONTENT

SR. NO TOPIC PAGE. NO

01) Introduction 04-05

02) Definition of sale 05-06

03) Essential elements of sale 06-07

04) Rights and Liabilities of seller and buyer 07-13

05) Marshalling by subsequent purchases 14

06) Discharge of Encumbrances on Sale 14-15

07) Bibliography 16

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SALE OF IMMOVABLE PROPERTY

INTRODUCTION

'Sale1' is defined as "a transfer of ownership in exchange for a price paid or promised or part-
paid and part promised'. (Section 54, Transfer of Property Act, 1882)

A Sale, as the name suggests, involves two parties, a seller and a buyer of the goods. The buyer
agrees to pay a price as fixed mutually or by contract of sale. If the sale involves a movable
object, then with the transfer of ownership, the property also goes into possession of the buyer
but if the property is immovable, only the ownership of that immovable property changes
hands.

After every Sale, the buyer (owner) acquires all rights of ownership and possession over the
property as per the "Sale Agreement". Ideally every Sale is registered at the Sub-Registrar
Office. A verbal contract is also valid along with a written contract, though not advisable.

Stamp duty is paid in each sale transaction, depending upon the price determined or the sale
value of the property.

Section 54 of the transfer of property act has three parts vis-a-vis (a) definition of sale, (b) Sale
how made and (c) Contract of sale.

Statement of Problem

The proposed study intends Firstly, to study about the concept of Sale and the essentials thereof; and
Secondly, to study the rights and liabilities of the buyer & seller in Sale of immovable property.

Hypothesis

After every Sale, the buyer (owner) acquires all rights of ownership and possession over the property
as per the "Sale Agreement".

1
Section 54, T.P.A.

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Research Objective

• To study the concept of sale with respect to Transfer of Property Act.

• To study the essentials of Sale
• To study the Rights and Liabilities of the Parties in the sale of immovable property i.e. the rights
and liabilities of the Buyer and the Seller of the Immovable Property.

DEFINITION OF SALE
“Sale” is a transfer of ownership in exchange for the price paid or promised or part-paid and
part-promised.

Sale is defined as a transfer of the ownership. In sale there is absolute transfer of all the rights
in the property sold. The words “transfer of ownership” stand in contrast with the words
“transfer of an interest” occurring in section 58 in the definition of mortgage and with “transfer
of a right to enjoy property” in the definition of lease. In a mortgage or in a lease there is partial
transfer of rights while in a sale all the rights of ownership which the transferor has, pass to the
transferee. A sale must be distinguished from a hire – purchase agreement. If the transferee has
to pay entire purchase price, it indicates that the transaction is sale but where the transferee is
given right to terminate the agreement, the transaction may be a hire –purchase agreement.2

The transfer by way of sale of tangible immovable property of the value of rupee one hundred
and above can be made by a registered instrument. The transfer by way of sale of tangible
immovable property of the value of less than one hundred rupees may be made either by a
registered instrument or by delivery of the property.

"Transfer" This term is defined specifically under the Income-tax Act but not in Transfer of
Property Act. Although the term "transfer" would be understood in the general sense of
conveying or passing or making over the title from one person (the Owner) to another, it is
used in a much wider sense under the Income-tax Act. According to the said definition in
section 2(47) of I.T. Act, "Transfer" in relation to a capital asset includes: -

1) Sale, exchange or relinquishment of the asset; or

2
Shukla, S.N., TRANSFER OF PROPERTY ACT, ALLAHABAD LAW AGENCY, Chapter III, Of sale of
immoveable property, Comments- Definition of Sale, p.178

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2) Extinguishment of any rights therein; or

3) Compulsory acquisition of the asset under any law; or
4) Conversion of the capital asset into stock-in-trade of one's own business;
5) Transaction u/s. 53 A of the Transfer of Property Act i.e. allowing possession
of any immovable property to be taken or retained in part performance of the
contract; or
6) Any transaction e.g. by way of becoming a member of a society, company etc.
or any agreement or arrangement which transfers or enables enjoyment of the
immovable property to another person.

The words Sale, Exchange, Relinquishment or extinguishment are not defined or explained in
the Income-Tax Act but are so explained in the Transfer of Property Act.

Contract of sale

As per Section 54 of the T. P. Act, a contract for the sale of immovable property is a contract
laying down that the 'Sale' of such property shall take place on the terms settled between the
parties in the said contract. Such contract for sale does not create any interest in or charge on
such immovable property. The contract for sale does not result in any transfer of ownership.
However, a sort of obligation is created in respect of the ownership of the property.

ESSENTIAL ELEMENTS OF SALE ARE AS UNDER:

1. Parties
Individuals competent to enter into Contract as per the provisions of Section II of the
Indian Contract Law, 1872. A minor or lunatic cannot be a transferor / vendor as he is
not competent to contract under Section II of the Indian Contract Act, 1872. However,
it has been held that a minor or a lunatic can be a transferee or purchaser in the case of
transfer by way of sale or mortgage, represented by his Guardian.
2. Subject matter
The concerned immovable property that is considered as saleable. Subject matter is the
transferable immovable property.

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3. Price
Price is an essential ingredient for all transactions of sale and in the absence of the price
or the consideration, the transfer is not regarded as a sale. The transfer by way of sale
must be in exchange for a price. It has been held that price normally means money.
Money that is mutually agreed to by both parties to be paid/ received. An agreement at
the price is reached at, before the property changes hands. The price can be paid fully
in cash or it can be partly paid and partly promised to be paid in future. The price can
be fixed by the agreement between the parties before the conveyance of the property.
The price is to be fixed reasonably.
4. Delivery of Property
Transfer by way of sale in the case of tangible property worth less than rupees One
Hundred can be made either by a registered instrument or by delivery of property by
putting the purchaser or the person directed by the purchaser, in possession of property.
If the consideration for the sale is more than Rs.100/- then the instrument must be
registered under the Registration Act, 1908 or by placing the buyer with possession.

RIGHTS AND LIABILITIES OF SELLER THE BUYER3253

Introduction

A buyer of property has some rights and liabilities. According to the Transfer of Property Act,
buyers of immovable property are entitled to some rights and have some responsibilities, which
they need to fulfil statutorily.

A buyer is bound to disclose to a seller any fact as to the nature or extent of the seller’s interest
in the property of which the buyer is aware, but of which he has reason to believe that the seller
is not aware, and which materially increases the value of such interest. An omission to make
such disclosures is fraudulent.

Also, the buyer is liable to pay or tender, at the time and place of completing the sale, the
purchase money to the seller or such person as he directs. The payment should be as per the

3
Dr H.N. Tiwari, T.P.A., page no 259, ALLAHABAD LAW AGENCY.

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agreed terms and conditions. Where the property is sold free from encumbrances, the buyer
may retain out of the purchase money the amount of any encumbrances on the property existing
at the date of the sale and should pay the amount so retained to the persons entitled to get the
encumbrances released.
Moreover, where the ownership of the property has passed to the buyer, as between himself
and the seller, the buyer is liable to pay all public charges and rent which may become payable
in respect of the property, the principal money due on any encumbrances subject to which the
property is sold, and the interest due later. Once the ownership has been transferred to the
buyer, the buyer is liable to pay all the statutory charges like municipal taxes, property taxes,
cess, electricity, water charges etc.

Section 55 of the T. P. Act deals with the rights and liabilities of the buyer and the seller. In
the absence of a contract to the contrary, the buyer and the seller of immovable property
respectively are subject to the liabilities and have the rights mentioned in the rules as laid down
in section 55 or such of them as are applicable to the property sold.

"seller" - means a person who sells or agrees to sell goods

Rights and liabilities of the seller

In the absence of the contract to the contrary, the section 55 of the transfer of the property act
provides for the provision for the rights and liabilities of the seller and the buyer. The rights
and liabilities before the completion are of sale are contractual.

Liabilities of the seller

The liabilities/ duties of the seller before the completion of the sale are:

(a) to disclose material defects in the property or in the seller’s title thereto [section
55(1)(a)];
(b) To produce title deeds [section 55(1)(b)];
(c) To answer questions as to title [section 55(1)(c)];
(d) To execute conveyance [Section 55(1)(d)]
(e) To take care of the property [Section 55(1)(e)]
(f) To pay outgoings [Section 55(1)(g)].

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(a) Seller’s duty of disclosure

The seller is under a duty to disclose to the buyer every material defect in the property or
in his own title thereto.

The duty arises when the seller is aware of the defects and the buyer could not with ordinary
care have discovered, that is, the duty is with regard to the latent defects but not patent
defects which the buyer could by himself discover. For example,

(1) The existence of an open right of way or the ruinous state of building is an apparent
defect while a deed is a latent defect.

(2) Similarly, an underground drain is a latent defect and if the buyer does not know of its
existence, the seller is duty bound to inform of its existence.

Therefore, the material defect to be disclosed must be either with regard to the property
itself or the title of the seller or the vendor. The failure to disclose these effects follows the
below mentioned consequences: -

i) If the purchaser discovers such defects before the completion of the sale the he may:
a. Either rescind the contract, or
b. Take the property and later claim damages.

ii) If the defects are discovered after the sale is completed, the buyer is entitled to
claim damages and he may sue to set aside the sale. Although the general rule that
once a sale always a sale cannot be avoided. But in the case of the non-disclosure
of the material defects the rule is otherwise, reason being an omission to make such
disclosure is fraudulent.

Under the latter half of clause (g) of Section 55 (1) of the Transfer of Property Act where
the property is not sold subject to any encumbrance, the vendor is bound to discharge all
encumbrances on the property then existing and he is bound to give an assurance to that
effect. Hence a covenant of title to the effect that the said premises are free from all

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encumbrances, claims and demands occasioned or created by the vendor, would not be in
compliance with section 55 (1) (g) of the Transfer of Property Act.4

(b) Production of title deeds.

It is the seller's duty to produce title-deeds relating to the immovable property contracted
to be sold for the inspection of the buyer in order that the buyer should satisfy himself as
to title. It is the buyer's interest to inspect the title deeds for otherwise he may be fixed with
constructive notice of matters which he would have discovered if he had investigated the
title.

(c) Seller's duty to answer material questions as to title.

The seller is further bound to answer all relevant questions put to him by the buyer in
respect of the property or title. The right to put questions to the seller does not affect his
duty to make disclosure as required by clause (a). The buyer's right to take objections and
to insist on proof of a title free from doubt may be lost by waiver.

Illustration: A contracts to sell a house to B. Before the execution of the deed of sale, B
enters into possession and tries to raise money on a mortgage of the house. B had waived
his right to make objections to the title to A.

(d) Seller's duty to execute conveyance.

It is the seller's duty to execute conveyance. This execution of the conveyance by the seller
and the payment of the price by the buyer is to take place, in the absence of a contract to
the contrary, simultaneously. If either party uses for specific performance, he must show
that he was ready and willing to perform his duty.

Section 55 (1) (d) of the Transfer of Property Act says that the seller is bound on payment
or tender of the amount due in respect of the price to execute a proper conveyance of the
property when the buyer tenders it to him for execution at a proper time and place. As a
matter of grammar, the word is being the latter portion of the clause refers to the
conveyance and therefore the words at a proper time and place would refer only to the
buyer tendering the conveyance to the seller for execution at a proper time and place. In

4
G. Gopala Chettiar v. N. Giriappa Gowden, (1971) 2 M.L.J. 481.

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other words, there is no explicit mention of the words 'proper time and place' in respect of
the first portion of Section 55 (1) (d), namely, of payment or tender of the amount due in
respect of the price. Normally, since the payment or tender of the amount due has to be
made to the seller, it has to be made at the seller's place; it would not be correct to contend
that the normal place of payment of the purchase-money is at the place of registration.

(e) Care of property.

It is the duty of the seller to take care of the property between the date of contract and the
delivery of the property to the buyer. The seller is sometimes said to be a trustee for the
buyer. His duties are, therefore, analogous to those imposed upon a trustee by Section 15
of the Indian Trusts Act. If the seller neglects his duty, the buyer is entitled to compensation
in the event of any loss or damage to the property.5

(f) Payment of outgoings

The last duty of the seller is to pay public charges and rent, etc., up to the date of the
completion of sale. Public charges would include government revenue, municipal taxes, etc.
The seller is also under a duty to discharge all encumbrances on the property existing at the
time of the sale except where the property is sold subject to encumbrances.

Rights of the seller: Before the completion

Until ownership is passed to the purchaser, the seller is owner and the rents and profits belong
to him. It should be recalled that a contract of sale does not create any interest in favor the
purchaser and, therefore, he cannot claim the rents and profits until the ownership passes to
him. In case the seller refuses to execute the sale-deed as agreed, the purchaser is entitled to
claim compensation from the date when the deed should have been executed. On the other
hand, if the buyer takes possession before the completion of the sale, the seller is entitled to
interest on the unpaid purchase-money from the date on which the possession is taken.6

5
Clark v. Ramuz, 2 Q.B. 456., Shukla, S.N., ibid.

6
Maung Shew v. Muang Inn. (1917)44 I.A. 15, ibid.

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"Buyer" means a person who buys or agrees to buy goods

The Buyer’s liabilities before completion of the sale are: -

(a) To disclose facts materially increasing the value of the property [section 55(a)];
(b) To pay the price [section 55(5)(b)]

(a) Duty to disclose facts

The buyer is bound to disclose to the seller any fact as to the nature or extent of the seller’s
interest in the property. This duty corresponds to the duty of the seller to disclose material
defects in the property. Under the last paragraph of this section, a non-disclosure of such fact
on the part of the buyer would be fraudulent just as much as a non-disclosure by the seller
would be. The obligation of the buyer to disclose facts extends only to the nature and extent of
the seller's interest in the property: and this obligation arises only: (i) if the buyer knows or has
reason to believe that the seller does not know the nature and extent of his interest; and (ii) if
the fact materially increases the value of the property. In an English case, Summers v. Griffith3,
an old woman of eighty-eight, being in distress and without legal assistance, was induced to
sell to her property at one-fourth of face value under the impression that she could not make
out a good title whereas the purchaser knew that she could and thus concealed the fact from
her, the court said:

“if a person comes to me and offence to sell me a property which I know to be five times the
value he offers it for, he being ignored of his rights and in the belief that he could not make a
good title which I know he can; and I conceal that knowledge from him is not that a suppression
very which is one of the elements which constitutes a fraud?”

It has however, been held that a buyer is under no duty to disclose latent advantage of the
property although he many not make fraudulent statement.

(b)Payment of price:

Ordinarily, the obligation to pay the purchase money on one hand and the obligation to
execute the conveyance or complete the sale on the other are obligations which should be
performed concurrently. By the proviso an exception is allowed in favor of the buyer who
has brought property as free from encumbrances and finds that an encumbrance has not been

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paid off. He may retain out of the purchase money a sum sufficient to pay a large amount
than the price, he may recover the difference by a separate suit against the seller.7

Buyer’s Rights

The buyer has two rights. One of them is before the completion of the sale and other is after
completion of the sale. They are as follows: Before completion: Buyer's lien.

According to the last clause of Paragraph 6, the buyer has, on the seller failing to complete
the sale, a charge for the amount paid by him in advance on account of the purchase money.
This charge is converse of the seller's charge for unpaid price. The charge, unlike the seller's
charge, can be enforced against all persons holding the property irrespective of the question
of notice. Such charge can even be enforced against a purchaser for consideration with or
without notice of the charge.

The question whether a buyer by pre-payment can obtain a charge on the property depends on
whether the default in completing the sale rests with him or with the seller. The rule is that a
buyer is entitled to a charge for the prepaid price and interest thereon to the extent of the
seller's interest in the property but in case he has improperly declined to take delivery, the
charge is lost. As regards the earnest or money deposit if the contract goes off through the
default of the buyer, the seller is entitled to retain the earnest money as forfeited, but if, on the
other hand, the seller is in default, the buyer is entitled to a refund of the earnest money.

It is clear from Section 55 of the Transfer of Property Act that law has clearly laid down that
unless the buyer improperly declines to accept the delivery of the property, the amount of
purchase money paid to the buyer in anticipation of the delivery and for interest on such amount
shall remain as a charge on the property as against the seller and all persons claiming under
him.8

7
Mehtab Singh v. Collector of Saharanpur, 30 A.L.J. 556
8
Msf. Anchi v. Maida Ram, AIR 1987 Rajasthan, 11, Jaipur Bench.

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MARSHALLING BY SUBSEQUENT PURCHASES

If the owner of two or more properties mortgages them to one person and then sells one or
more of the properties to another person, the buyer is, in the absence of a contract to the
contrary, entitled to have the mortgage-debt satisfied out of the property or properties not sold
to him, so far as the same will extend, but not so as to prejudice the rights of the mortgagee or
persons claiming under him or of any other person who has for consideration acquired an
interest in any of the properties.

a) Where there is a contract to the contrary between the buyer and the mortgagor;9
b) Where the rights of the mortgagee or any person claiming under him or of any other
who has for consideration acquired an interest in any of the properties, are prejudiced.

DISCHARGE OF ENCUMBRANCES ON SALE

Provision by Court for encumbrances and sale freed therefrom -:

(a) Where immoveable property subject to any encumbrance, whether immediately payable or
not, is sold by the Court or in execution of a decree, or out of Court, the Court may, if it thinks
fit, on the application of any party to the sale, direct or allow payment into Court,

1) in case of an annual or monthly sum charged on the property, or of a capital sum

charged on a determinable interest in the property - of such amount as, when invested
in securities of the central Government, the Court considers will be sufficient, by means
of the interest thereof, to keep down or otherwise provide for that charge, and

(2) in any other case of a capital sum charged on the property of the amount sufficient
to meet the encumbrance and any interest due thereon. But in either case there shall
also be paid into Court such additional amount as the Court considers will be sufficient
to meet the contingency of further costs, expenses and interest, and any other
contingency, except depreciation of investments, not exceeding one-tenth part of the
original amount to be paid in, unless the Court for special reasons (which it shall record)
thinks fit to require a large additional amount.

9
Mangayya v. Achchayamma, (1954) A.M. 224.

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(b) Thereupon the Court may, if it thinks fit, and after notice to the encumbrance, unless
the Court, for reasons to be recorded in writing, thinks fit to dispense with such notice,
declare the property to be freed from the encumbrance, and 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.

(c) After notice served on the persons interested in or entitled to the money or fund in Court,
the Court may direct payment or transfer thereof to the persons entitled to receive or give a
discharge for the same, and generally may give directions respecting the application or
distribution of the capital or income thereof.

(d) An appeal shall lie from any declaration, order or direction under this section as if the same
were a decree.

(e) In this section "Court" means - (i) a High Court in the exercise of its ordinary or
extraordinary original civil jurisdiction, (ii) the Court of a District Judge within the local limits
of whose jurisdiction the property or any part thereof is situate, (iii) any other Court which the
State Government may, from time to time, by notification in the Official Gazette, declare to be
competent to exercise the jurisdiction conferred by this section.

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BIBLIOGRAPHY

BOOKS AND STATUTES

1) Singh Avtar (Dr), transfer of property act, 3rd ed., Universal law publishing Co., New
delhi,2013.
2) Tripathi, G.P. (Dr), transfer of property act, 17th ed., Central law publications,
Allahabad,2011.
3) Sinha R.K., transfer of property act, 15th ed., Central law publications,
Allahabad,2014.
4) Transfer of property Act,1882

WEBLINKS

1) http//www.lawnotes.in/section 54 of transfer of property act,1882.

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