Sale

SALE

WHAT IS A SALE?

Generally, a sale is a transaction where ownership of goods, services, or property is transferred from the seller to the buyer in exchange for monetary terms with an agreed-upon value.

Specifically to the transfer of property, a sale is a transfer of ownership of immovable property from a person or entity (the seller) to another person or entity (the buyer). This transfer is agreed upon or settled based on certain considerations, accepted by both parties, usually on monetary terms. So, this process of sale in the transfer of a property requires a formal agreement, established through a sales contract or sales deed, which provides the legally binding terms and conditions of the sale for the parties involved.

OFFICIAL DEFINITION

Sale as defined in legislation(s):

The concept and process of sale are governed by the Transfer of Property Act, of 1882, therein, under Section 54 it provides for the definition of sale.

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

The provision encompasses three elements,

• Firstly, the sale is a contract that is a legally formalized transaction.
• Secondly, ownership is transferred from the seller to the buyer upon the former's agreement to it.
• Thirdly, the property transfer is made in “exchange” for a price value, which is paid or promised to be paid in full or paid in partial installments & the remaining promised to be paid.

Sale how made?

If the transfer is made for the sale of an immovable property which is worth Rs. 100 or more or even an intangible property like a reversionary rights, such transfer can be made only through a registered instrument. In the case of a tangible property that is valued at less than Rs. 100, the transfer can be made either through a registered instrument or through the delivery of possession, meaning the act of placing the buyer or someone directed by them in control of the property.

Sale v. Contract for Sale:

This section also differentiates a contract for sale from that of a sale. Wherein, the former means an agreement that a sale will take place on terms and conditions that are mutually agreed between the parties. But, that contract doesn’t imply that the transfer of ownership has occurred or it doesn’t create any interest in the property. Therefore, this contract for sale is a mere promise or an agreement that the property will be sold in the future subject to conditions. This contract captures the intention of the parties, however, nothing is legally binding here regarding the property and its ownership or possession.

The latter, the sale, is an actual transfer of ownership based on the agreed terms and conditions and is executed through a registered instrument (sale deed) or delivery of possession. Here exists a legal transfer of interest in the property

Sale as defined in case law(s)

In Vidhyadhar v. Manikaro, the Supreme Court held that a sale constitutes the parties' intention to transfer ownership of a property. That particular intention is to be mentioned explicitly in the recitals of the sale deed. The intention could also be assessed based on the parties' conduct and documented evidence.

In Suraj Lamp and Industries Pvt. Ltd. v. State of Haryana and Anr., the Supreme Court asserted that a registered instrument is required to sell immovable property, as an agreement of sale does not confer an interest in the property.

In Reddi Demudu v. Kannuru Demudamma, the Andhra Pradesh HC looked into the difference between “sale” and “contract for sale”. Wherein, the court stated that they are two very separate concepts addressed individually and not the same or similar concepts, the court termed them as “disjunctive and not conjunctive”. It further stated that a sale is put into effect upon the meeting of the conditions set in section 54 of the act, while the contract for sale is a mere statement of the terms of the agreement.

Legal provision(s) relating to Sale

In order to understand the concept of sale, it becomes imperative to look into the related provisions.

Section 55 - Rights and Liabilities of the Seller and Buyer

Liabilities of the Seller:

• The seller must disclose material defects of any degree in the property, that the buyer cannot easily discover through “ordinary care”.
• Upon the request of the buyer for examination, the seller must produce all relevant documents relating to the property.
• The seller must answer (to the best of their knowledge) all the questions posed concerning the property.
• Upon the payment or tender of the price, the seller ought to execute the conveyance deed when presented by the buyer.
• The seller is obligated to take reasonable care of the property and its documents from the agreement to the delivery of the property.
• The seller must hand over possession of the property as required or directed by the buyer
• The seller ought to pay the public charges and rents up to the sale date and clear any encumbrances unless agreed otherwise.

The seller is supposed to guarantee the interest being transferred to the buyer is valid and that they have the authority to make this transfer. In the context of fiduciaries, the seller warrants that they have nothing to encumber the property or prevent its transfer.

Once the seller has received the full purchase price of the property, they must deliver the documents, with the exception being in case, when the seller is retaining part of the property or if multiple buyers are involved, where conditions apply.

Rights of the Seller:

• The seller has the right to the rent and profits made till the ownership is transferred to the buyer.
• If in case the ownership is transferred but the buyer has not paid the purchase price, then the seller has the right to charge the unpaid amount with interest.

Liabilities of the Buyer:

• The buyer is responsible for disclosing facts that might increase the value of the property, if in case the seller is unaware of the same.
• The buyer must make the payment or tender the purchase price at the agreed conditions, with the exception being in the instance of encumbrances.
• Upon the transfer of ownership, the buyer must bear the loss that arises from the destruction or damage of the property unless it is caused by the seller
• Once, the ownership has passed to the buyer, they ought to pay public charges, rents, and interest on encumbrances.

Rights of the Buyer:

• Once after the passing of ownership, if the buyer gains any sort of benefits due to an increase in the property value, then they are entitled to its rights.
• If in case the seller doesn’t deliver the property upon the payment, then the buyer has the right to charge to recover the payment made with the interest.

Note: Failure to make such material disclosures amounts to committing Fraud.

Section 56 - Marshalling by Subsequent Purchaser

This particular section provides rights to a subsequent purchaser of a property, this is to protect their interest when the seller has already mortgaged multiple properties.

The section states that, in case the owner of the property mortgages multiple properties to one person, and later on sells one or more of that property to another person, then the buyer of the property can request that the mortgage debt be paid from the unsold properties first. As long as this doesn't harm the mortgagee or others who have valid claims on the properties.

Section 57 - Discharge of Encumbrances on Sale

This particular section empowers the court to manage encumbrances on the immovable property being sold, while in the process, the section also ensures that the interests of both the encumbrancer and buyer are protected.

In general, encumbrance means a legal claim or liability on a property that may affect its ownership or the value of the property, like a mortgage, lien, or charge.

Section 57 states that, firstly, if a property that is subject to encumbrance is sold by the court or through execution of a decree or privately, the court may permit payment to cover the encumbrance. Wherein, the payment should be sufficient to clear the encumbrance, and an additional amount (usually up to 10% of the payment) will be required to cover any possible costs and contingencies, making sure that the property will be sold free of claims.

The Court can declare a property free from encumbrance after giving notice to the parties involved. It can pass an order for transferring the property to the buyer and manage the funds deposited to clear the encumbrance. After removing the encumbrance, the Court can further direct the distribution of the fund to the entitled parties .

Section 17 of the Registration Act, 1908

Once the Sale deed has been executed, where the seller through this document is legally entitled to transfer the ownership of the property to the buyer. This sale deed must be executed through a non-judicial stamp paper with appropriate value and signed by both parties.

Once after executing the sale deed, it becomes crucial to register the sale deed to establish the legal validity of the sale made. According to Section 17  of the Registration Act, 1908, the said sale deed of immovable property must be registered to make it valid and so it will be admissible in courts as evidence. If the sale deed is not registered, the ownership of the property cannot be transferred effectively.

RESEARCH THAT ENGAGES WITH SALE

Mahima Kumari, A Critical Analysis of Section 54 of The Transfer of Property Act: of Sales of Immovable Property, IJIRL.

The above-mentioned research, looks into Section 54 of the TOPA, on the sale of immovable property. Therein, analyzes the key aspects vital to understanding the concept of sale under TOPA, like the definition, the essentials of sale to be legally valid, and the modes through which transfer can be made. The paper also differentiates a sale of an immovable property from other concepts like contracts of sale, exchanges, and gifts, while interpreting it with judicial decisions and its inconsistencies. Through the research, the article highlights the importance of understanding the concept of sale to protect the rights of the buyer and the seller.

The only research gap with this article is that it doesn’t specify the registration of the sale deed.

Sarthak Chugh, Analysis of Section 54 of the Transfer Of Property Act, 1882— Determination of Sale Through the Critique of Bank of India vs Abhay D Narottam & Ors., IJALR.

This paper analyses Section 54 of the TOPA which defines Sale and distinguishes it from contract for sale with special reference to the landmark case Bank of India v. Abhay D. Narottam & Ors. It also shows what makes a sale valid; that is, when there is a written agreement, and the role of possession in transferring ownership and the elements that determine immovable property.

This article presents a comprehensive analysis of the principles developed under Section 54 through the discussion of this case, in which the important elements of a sale transaction, including the capacity of the parties, the subject matter, and the consideration, are highlighted. It also discusses the legal nuances of tangible and intangible property, the distinction between a sale by registered deed and one by delivery of possession, and how these principles were applied in the case under reference.

Ajit Warrier, Sale of Immovable Property and Deeming Fiction under the Registration Act — A Comparative Analysis, SCC Online.

This particular article analyzes the legal interplay between Section 47 of the Registration Act, 1908, and Section 54 of the TOPA, in the line of sale of immovable property. It examines the basic requisite for property to be transferred and asserts the significance of registering the sale to validate the transfer. While, examining it through vital cases like Kanwar Raj Singh and Ram Saran Lall, which state the operation and priority of registered documents and make the sale upon registration.

Most importantly, the article emphasizes the deeming fiction of section 47 of the Registration Act, which is legally effective from the date of execution, which in turn undermines the vital part of registering a sale to establish its legal validity. Therefore, this article highlights that non-registration of a sale makes it ineffective and by that asserts the legal necessity of making a registration.

CHALLENGES

There is no major challenge when it comes to the concept of sale, as the law has explicitly stated the required definitions and essentials. However, from a research and implementation point of view, the following can be considered as more like legal implications.

A sale under the TOPA carries significant challenge/legal implications, particularly in terms of the transfer of risk. Once the sale is completed, the risk associated with the property generally shifts to the buyer. This means that any loss, damage, or deterioration of the property occurring after the sale, even if it happens before the buyer takes physical possession, becomes the buyer’s responsibility. The buyer assumes all risks connected to the property from the moment of completion unless otherwise agreed upon by the parties involved in the sale.

Additionally, the seller is usually bound by certain covenants and warranties. One of the most important is the covenant of title, which assures the buyer that the seller holds a clear and marketable title to the property, free from encumbrances. This protects the buyer from potential future claims or disputes regarding ownership. In case either party fails to uphold the terms of the sale agreement, the aggrieved party has legal recourse, including the right to claim damages or seek specific performance of the contract. Such remedies provide the affected party with an opportunity to enforce the terms of the agreement through the courts, ensuring accountability and fairness in the transaction.

When it comes to data on the concept of a sale under TOPA, the inability to obtain proper access to authentic records like sale deeds and contracts, especially in rural sectors, makes it difficult to identify whether the ownership is correctly carried on and whether registration as envisaged by law has taken place. In addition, with inconsistent recording of data in the different states and regions discrepancies in property sales cannot be tracked consistently, creating an enormous problem in addressing legal issues.

WAY AHEAD

In order to better secure covenants and warranties, legal reforms would be introduced to strengthen this relationship between the parties who undertake the sale of properties. The burden on courts will also be relieved through audits with alternative dispute resolution methods, such as mediation and arbitration. In this case, the risks associated with risk transfer, title disputes, and inconsistent data recording may be mitigated through this process, making the whole TOPA property transaction process much more transparent and reliable.