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 – TIRUCHIRAPPALLI – 620 620 009
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 OF AN ACTIONABLE CLAIM” submitted
“TRANSFER
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 aren’t sufficient to acknowledge the tr emendous 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 i mmovable 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 human’s legacy these days as everybody has ownership over something movable or immovable or tangible or intangible of some value which requires protection. Generally, the t erm 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 i nherited 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 t o 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 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/ 2
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 t he 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 7
http://www.ipropertybook.com/bnm/actionable-claim/ 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 t he 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 transferor’s 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. Aiyangar 12, it was held that:
9
Section 130 of the Transfer of Property Act. 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. 10
(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 i nsurance 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 Law of Transfer of Property by Vepa P.Sarathi, Fifth Edition, Page number 295.
14 14
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 transferee’s 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 Das 17, 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 t he 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 t ransfer. This also limits the liability of the transferor only to the quantum of consideration.19
15
(1923) 27 CWN 733 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. 16
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 t he 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 ri ghts under policies of insurance against fire. 20
Transfer of Property Act by S.N. Shukla, Page 549. https://www.bankingschool.co.in/knowledge-capsule/important-banking-laws/laws-related-to-securityoffered-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. 21
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 t he 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 person’s 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 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. 27
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 fil ed 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 Giridharlal 38, 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 AIR 1976 AP 273.
38
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.
