TPA
TPA
TPA
1 INTRODUCTION
'Sale' 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.
After every Sale, the buyer (owner) acquires all rights of ownership and possession over the
property as per the "Sale Agreement".
“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.
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:-
iv. Conversion of the capital asset into stock-in-trade of one's own business;
v. 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
vi. 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.
1. Parties -
Individuals competent to enter into Contract as per the provisions of Section II of the Contract
Law, 1872. A minor or lunatic cannot be a transferor / vendor as he is not competent to
contract under Section II of the 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
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.
1. The first step is to find two parties willing to enter into a transaction. A potential buyer
either places an offer to purchase the property or the seller markets his property for sale. This
might involve a third party also (advisable), the real estate agent who initiates communication
between the two parties.
2. When the buyer decides in on a particular property, a price is fixed and terms of sale are
laid down in Sale Agreement.
4. A contract called "Agreement of Sale" is signed and a commitment is made. (It is highly
advisable to seek professional legal advice in drafting a sales agreement as there can be many
legal tangles involved that might need resolution before proceeding)
5. Titles of the property are transferred from the seller to the buyer all the way through
"convincing". Generally, buyer pays 10-20% of the sales price to the seller.
6. The seller has to clear all dues linked to the property. Any other negotiation includes
tenants, associated mortgages and lessees and employees, if required.
10. Subsequently, the buyer/purchaser takes the physical possession of the property.
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
2.1 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 fulfill 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
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.
In addition to this, where the ownership of the property has passed to the buyer, he has to bear
any loss arising from the destruction, injury or decrease in value of the property not caused by
the seller. The buyer becomes liable for any loss or damage to the property as soon as the
buyer becomes the owner and the seller ceases to be the owner of the property.
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.
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.
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)];
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:
(II) If the defects are discovered after the ale 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 later 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
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.
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.
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.
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 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.
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
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.
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.
(a) To disclose facts materially increasing the value of the property [section 55(a)];
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-forth 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 suppresio
veri 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.
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.