UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY

PROJECT OF THE TRANSFER OF PROPERTY ACT

SALE OF IMMOVABLE PROPERTY

SUBMITTED TO: Dr. ALAMDEEP KAUR

SUBMIITED BY: RITIKA KAMBOJ

SECTION: E

ROLL NO.: 274/19

B.com LL.B (Hons.), 5th SEMESTER

 ACKNOWLEDGEMENT

In the accomplishment of this project successfully, many people have

best owned upon me their blessings and the heart pledged support. I
thank to all those people who have helped me in this project.
I would like to express my gratitude towards Dr. Alamdeep Kaur,
whose valuable guidance has been the ones that helped me patch this
project and make it a full proof success. Her suggestions and
instructions have served as the major contributor towards the
completion of the project.
Then, I would like to thank my parents and friends who have helped
me with their valuable suggestions and guidance has been very
helpful in various phases of the completion of the project.
I also thank all my friends who have more or less contributed to the
preparation of this project report. I will always be indebted to them.
 INDEX

 TRANSFER OF PROPERTY - Sec. 54 Sale of Immovable

Property
 Elements of Sale
 Essentials of Sale
 Contract for Sale
 Distinction between the ‘sale’ and ‘hire-purchase’
 Distinction between sale and Exchange
 Section 55, Rights and liabilities of buyer and seller
 Section 56, Marshalling by subsequent purchaser
 Section 57, Provision by Court for encumbrances and sale freed
TRANSFER OF PROPERTY
Sec. 54 Sale of Immovable Property, Agreement to Sale Distinction between Sale and
Exchange, Sale and Mortgage, Sale and Hire Purchase Management.

Section 54: ‘Sale’ is a transfer of ownership in exchange for a price paid or promised or part-
paid and part-promised.

Sale how made – 1Such transfer, in the case of tangible immovable property of the value of
one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can
be made only by a registered instrument.

In the case of tangible immovable property of a value less than one hundred rupees, such
transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immoveable property takes place when the seller places the buyer, or
such person as he directs, in possession of the property.

Sale of Immovable Property: Explained as Under Transfer of Property Act, 1882

Sale simply means buying and selling of goods and services, under Transfer of Property Act,
1882 the Sale is of immovable property.

Let us first understand the meaning of a few keywords which are necessary in order to
understand and interpret the Transfer of Property Act.

Section 3 of the Act is the Interpretation-clause, which provides for the meaning of key
terminologies:

1. Immovable property – does not include standing timber, growing crops or grass,

2. Instrument – means a non-testamentary instrument. The instrument is a written document,

a formal or legal document in writing, such as a contract, deed, bond or lease or anything
reduced to writing.

3. Registered – register is a book containing a record of facts as they occur, kept by public
authority. A document cannot be said to have been duly registered if the registration has been
made in contravention of the provisions of the Registration Act. (Nahar Lal v. Brijnath 1928
AC 385)

4. Attached – is a term describing the physical union of two otherwise independent structures
or objects, o the relation between two parts of a single structure, each having its functions
(National Brake & Electric Co. v. Christensen)2

1
As to limitation to the territorial operation of Paras 2 and 3 of section 54, section 1, supra. These paragraphs
extend to every cantonment.
2
CCA Wis. 229 F 564, 570
Section 5 – Transfer of property defined

“Transfer of Property” means an act by which a living person conveys property, in present
or future, to one or more other living persons, or to himself and one or more other living
persons; and “to transfer property” is to perform such act.

Some of the means of transfer of property from one person to another are – by sale, or by
exchange, or by gift, or by adverse possession, and in some cases, even by a decree of the
Court.

Section 54 of the Act defines ‘sale’ and specifies how a sale of immovable property may be
made. Herein, sale3 refers to the sale of immovable property whether tangible or intangible
(example – easement rights)

Sale is a transfer of ownership for a money consideration. It implies an absolute transfer of all
rights in the property sold. No rights in the property sold are left in the transferor.

Contract for sale – A contract for the sale of immovable property is a contract that a sale of
such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property.

I. Elements of Sale

1. Transfer of ownership – ownership is the aggregation of all the rights and liabilities in a
property. When there is the transfer of ownership, the aggregation or total of all rights and
liabilities in a property are transferred from transferor to the transferee.

2. Money consideration – the ‘price’ that is referred to in section connotes to money

consideration. Where the ownership of property is transferred in consideration for money it
amounts to sale but if it is transferred for anything else it amounts to exchange.

Section 54 Provides that contract for sale of itself does not create any interest in or charge on
such property. (Bhabani Sarma v. Narayan Sarma)4

3
BOI v. Abhay D. Narottam, (2005) 11 SCC 520
4
AIR 2003 Gau 171
II. Essentials of a sale

1. Parties

In a sale, there must be in the least two parties. The person who transfers his/her property is
known as the transferor/seller/vendor and the person to whom the property is transferred is
known as the transferee/buyer/vendee.

2. Competency

For a valid sale both the buyer and seller have to be competent on the date of the sale.

a. Seller

 The seller must have the ownership of the property which he is going to sell.
(Gangotri Bai v. Jeevarkhan Lal)5 The seller must have a legal title to it only then he
can sell the property. (Arjuna Subramanya Reddy v. Arjuna China Thangavelu)6 The
seller must be competent to contract. (N. Ramchandran v. M. Nayanamalai)7. He
must not be a minor.
 He must not be of unsound mind.
 He must not be statutorily incompetent – This refers to incompetency under the law
for example when a person is declared insolvent his property bestowed on the person
who recovers he is indebted to in this case the property is legally reserved for the
recovery of debt.
 The seller may be a natural person/juristic person, for example, corporations or
another legal person.

b. Buyer

 The buyer must be competent to receive the ownership of the property.

 The buyer should not be disqualified from buying the immovable property by any law
in force at the time of the sale – for example under section 136 of the Act, a judge, e
legal practitioner or an official of the court is incompetent to purchase actionable
claims.
 The seller may be a natural person/juristic person, for example, corporations or
another legal person.

c. Subject – matter

Sale under Transfer of Property Act, 1882 specifically deals with sale of immovable property.
Immovable property includes the benefits arising out of the land and the things attached to
the earth except for standing timber, growing crops and grass.

The right to catch and carry away fish is a ‘profit pendre’ and construed as immovable
property.
5
AIR 2006 Chh. 88
6
AIR 2006 AP 362
7
(2007) 3 MLJ 910)
3. Money consideration

Price is an essential element of the sale.

Where, by the transfer, the vendor is getting rid of the liability to pay a certain sum, it cannot
be said that there is no consideration for the sale. (Alama Chand v. Chhajju)8. An agreement
between the parties cannot be rendered nugatory on the ground that the consideration was not
adequate. (Sheo Shankar Kr. Khetan v. Widow of Late A. Prasad)9. The price paid and price
promised to stand on equal footing as regards the transaction of a sale. There is nothing
illegal, or contrary to public policy if the parties agree that the payment of the consideration
shall be postponed in certain events, or that it shall not be paid at all if the property is lost.

Therefore, a stipulation in a sale-deed that the price will be paid within one year, provided
that possession is obtained within that time, and that if possession is not so obtained then the
payment of the price will be postponed, or that in the event of the vendee not getting the
property, the price will not be paid at all. In all the above cases, the deed is a sale-deed within
the meaning of the section. (Umakanta Das v. Pradip Kumar Ray)10

If from the recitals in the sale deed it appears that title would pass after payment of full
consideration, the inference would be that until the consideration is paid, there is no transfer.

4. Conveyance

Section 54 provides for two modes for transfer of property –

1. Delivery of possession- Where the property us the tangible immobile property of the value
of one hundred rupees and upwards transfer can be made only by a registered instrument.
Where the property is tangible immovable property of a value of less than one hundred
rupees, its transfer may be made either by a registered instrument or by delivery of property.
Delivery of tangible immovable property takes place when the seller puts the buyer or such
person as the buyer directs in possession of the property.

2. Registration of sale deed – Where the value of the tangible immovable property is Rs.
100 or more, the sale of such property requires registration of the deed. Where the property is
intangible immovable property11 of any valuation, it will require registration for completion
of sale.

5. Registration

A combined reading of section 8 and 54 of the Transfer of property act, 1882 suggests that
through execution and registration of a sale deed, the ownership and all interests in the
8
AIR 1923 All 530, 531, Col. 2: ILR 45 All 559: 74 IC 339
9
(2007) 3 BLJR 2936 (Pat).
10
AIR 1983 Ori 196
11
G Ram v. Delhi Development Authority, AIR 2003Del 120
property pass to the transferee, yet that would be on terms and conditions embodied in the
deed indicating the intention of the parties. The intention of the parties can be gathered from
the averments in the sale deed itself or by other attending circumstances.

Registration is the prima facie proof of the intention of the seller that he wanted to transfer
the ownership on the date of the execution.

Where the sale is to be completed only by the registered instrument, the ownership is deemed
to pass on the execution of the sale deed, not on the registration of the deed. The sale deed
transferring immovable property of the value of 100 or more requires registration under
Indian Registration Act 1908.

III. Contract for Sale

A contract of sale must be based on a mutual agreement between the seller and the buyer.
(Misabul Enterprises v. Vijaya Srivastava)12

Section 54 states that a contract for sale of immovable property or an agreement to sell is a
contract that a sale of such property shall take place on terms settled between the parties. It
does not of itself create any interest in, or charge on such property. (Raheja Universal Ltd. v.
NAC Ltd13).

This is different in English law, wherein a contract for sale transfers an equitable estate to the
purchaser, but this rule is not applicable in India. A contract for sale does not confer any title
in immovable property.

IV. Sale and Contract for Sale – Differences Sale Contract for sale There is a transfer of
ownership There is merely an agreement for the sale of property in terms agreed between
parties conveys a legal title to the buyer. Does not create any interest in the property. Creates
a right in rem Creates a right in personam Mandates registration where sale is of immovable
property of Rs. 100 or more does not require registration.

Distinction between the ‘sale’ and ‘hire-purchase’:

12
AIR 2003 Del. 15
13
2012 4 SCC 148
1. In a sale, property in the goods is transferred to the buyer immediately at the time of
contract, whereas in hire-purchase, the property in the goods passes to the hirer upon payment
of the last instalment.

2. In a sale, the position of the buyer is that of the owner of the goods but in hire purchase,
the position of the hirer is that of a bailee till he pays the last instalment.

3. In the case of a sale, the buyer cannot terminate the contract and is bound to pay the price
of the goods. On the other hand, in the case of hire-purchase, the hirer may, if he so likes,
terminate the contract by returning the goods to its owner without any liability to pay the
remaining instalments.

4. In the case of a sale, the seller takes the risk of any loss resulting from the insolvency of
the buyer. In the case of hire purchase, the owner takes no such risk, for if the hirer fails to
pay an instalment, the owner has the right to take back the goods.

5. In the case of a sale, the buyer can pass a good title to a bonafide purchaser from him but
in a hire-purchase, the hirer cannot pass any title even to a bonafide purchaser.

6. In a sale, sales tax is levied at the time of the contract whereas in a hire-purchase, sales tax
is not leviable until it eventually ripens into a sale (K.L. Johar & Co. vs. Dy. Commercial Tax
Officer).

Distinction between sale and Exchange

(i) Sale is a transfer of ownership for a price. An exchange also implies a transfer of
ownership but not for a price.

(ii) In an exchange, the ownership one thing is transferred for the ownership of another thing,
neither thing being money.

In a sale, the price is always money.

A sale occurs between two living persons be it natural or artificial. Under the Act, Sale
connotes to that of immovable property which encompasses tangible and intangible property,
as well as rights arising out of the land. For the sale, the parties must be competent. If the
sale is of immovable property of more than Rs. 100, it has to be registered.

The transfer of ownership is the transfer of all the rights and liabilities surrounding the
property, this transfer along with price paid results in a sale. Sale and contract for sale are
two very distinct documents. Contract of sale is merely a document signifying the willingness
to sell, and sale is the actual transaction that takes place.

Section 55, Rights and liabilities of buyer and seller: In the absence of a contract to the
contrary, the buyer and the seller of immoveable property respectively are subject to the
liabilities, and have the rights, mentioned in the rules next following, or such of them as are
applicable to the property sold:—

(1) The seller is bound—

(a) to disclose to the buyer any material defect in the property14 [or in the seller’s title
thereto] of which the seller is, and the buyer is not, aware, and which the buyer could not
with ordinary care discover;

(b) to produce to the buyer on his request for examination all documents of title relating to
the property which are in the seller’s possession or power;

(c) to answer to the best of his information all relevant questions put to him by the buyer in
respect to the property or the title thereto;

(d) 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;

(e) between the date of the contract of sale and the delivery of the property, to take as much
care of the property and all documents of title relating thereto which are in his possession as
an owner of ordinary prudence would take of such property and documents;

(f) to give, on being so required, the buyer, or such person as he directs, such possession of
the property as its nature admits;

(g) to pay all public charges and rent accrued due in respect of the property up to the date of
the sale, the interest on all encumbrances on such property due on such date, and, except
where the property is sold subject to encumbrances, to discharge all encumbrances on the
property then existing.

(2) The seller shall be deemed to contract with the buyer that the interest which the seller
professes to transfer to the buyer subsists and that he has power to transfer the same:

Provided that, where the sale is made by a person in a fiduciary character, he shall be
deemed to contract with the buyer that the seller has done no act whereby the property is
encumbered or whereby he is hindered from transferring it.

The benefit of the contract mentioned in this rule shall be annexed to, and shall go with, the
interest of the transferee as such, and may be enforced by every person in whom that interest
is for the whole or any part thereof from time to time vested.

(3) Where the whole of the purchase-money has been paid to the seller, he is also bound to
deliver to the buyer all documents of title relating to the property which are in the seller’s
possession or power:

14
Ins. By Act 20 of 1929, section 17.
Provided that, (a) where the seller retains any part of the property comprised in such
documents, he is entitled to retain them all, and, (b) where the whole of such property is sold
to different buyers, the buyer of the lot of greatest value is entitled to such documents. But in
case (a) the seller, and in case (b) the buyer, of the lot of greatest value, is bound, upon every
reasonable request by the buyer, or by any of the other buyers, as the case may be, and at the
cost of the person making the request, to produce the said documents and furnish such true
copies thereof or extracts therefrom as he may require; and in the meantime, the seller, or
the buyer of the lot of greatest value, as the case may be, shall keep the said documents safe,
uncancelled and undefaced, unless prevented from so doing by fire or other inevitable
accident.

(4) The seller is entitled—

(a) to the rents and profits of the property till the ownership thereof passes to the buyer;

(b) where the ownership of the property has passed to the buyer before payment of the whole
of the purchase-money, to a charge upon the property in the hands of the buyer, 1[any
transferee without consideration or any transferee with notice of the non-payment], for the
amount of the purchase-money, or any part thereof remaining unpaid, and for interest on
such amount or part15 [from the date on which possession has been delivered].

(5) The buyer is bound—

(a) to disclose to the 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;

(b) 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: provided that, 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 shall pay the amount so
retained to the persons entitled thereto;

(c) where the ownership of the property has passed to the buyer, to bear any loss arising
from the destruction, injury or decrease in value of the property not caused by the seller;

(d) where the ownership of the property has passed to the buyer, as between himself and the
seller, to pay all public charges and rent which may become payable in respect of the
property, the principal moneys due on any encumbrances subject to which the property is
sold, and the interest thereon afterwards accruing due.

(6) The buyer is entitled—

15
Ins. By Act 20 of 1929, section 17.
(a) where the ownership of the property has passed to him, to the benefit of any improvement
in, or increase in value of, the property, and to the rents and profits thereof;

(b) unless he has improperly declined to accept delivery of the property, to a charge on the
property, as against the seller and all persons claiming under him, 2[* * *] to the extent of
the seller’s interest in the property, for the amount of any purchase-money properly paid by
the buyer in anticipation of the delivery and for interest on such amount; and, when he
properly declines to accept the delivery, also for the earnest (if any) and for the costs (if any)
awarded to him of a suit to compel specific performance of the contract or to obtain a decree
for its rescission.

An omission to make such disclosures as are mentioned in this section, paragraph (1), clause
(a), and paragraph (5), clause (a) is fraudulent.

Right and liabilities of buyer and seller in Immovable property

Section 55 of transfer of property act 1882 describes right and liabilities of buyer and seller.

In any property transaction, buyers and sellers are subject to Right and liabilities. 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 next
following or such of them as are applicable to the property sold.

Liabilities of buyer:

According to section 55(5) of transfer of property act 1882

1. Liability to disclose facts– To disclose to the 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.
In the case of Hazi isha V/s Daya Bhai16 it has been held that it is the duty of the buyer that
he should provide all information related to ownership which he is in know, to the seller. This
arrangement is based on the principle of equity and relations of believe between buyer and
seller.

2. Liability of payment of purchase money- 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: provided
that, 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 shall pay the amount so retained to the persons entitled thereto.

3. Liability to bear damages– where the ownership of the property has passed to the buyer,
to bear any loss arising from the destruction, injury or decrease in value of the property not
caused by the seller.

4. Liability to pay due amount- where the ownership of the property has passed to the
buyer, as between himself and the seller, to pay all public charges and rent which may
16
A.I.R 1896 Mumbai 522
become payable in respect of the property, the principal moneys due on any encumbrances
subject to which the property is sold, and the interest thereon afterwards accruing due. In the
case of Gangi V/s Govinda it was held that the buyer is liable to pay all the charges after sale.
Due amount includes revenue, principal, interest etc.

Right of Buyer:

According to section 55(6) of transfer of property act 1882

1. Right to get Benefits, Rents- where the ownership of the property has passed to him, to
the benefit of any improvement in, or increase in value of, the property, and to the rents and
profits thereof; in “Achtak V/s Parmeshwar” it was decided that the buyer is entitled to get
benefits of the maintenance done by seller.

2. Right to get Interest-unless he has improperly declined to accept delivery of the property,
to a charge on the property, as against the seller and all persons claiming under him, to the
extent of the seller’s interest in the property, for the amount of any purchase-money properly
paid by the buyer in anticipation of the delivery and for interest on such amount; and, when
he properly declines to accept the delivery, also for the earnest (if any) and for the costs (if
any) awarded to him of a suit to compel specific performance of the contract or to obtain a
decree for its rescission.

An omission to make such disclosures as are mentioned in this section, paragraph (1), clause
(a), and paragraph (5), clause (a), is fraudulent.

Liabilities of seller:

According to section 55(1) of transfer of property act 1882

1. Liability to Reveal Fault:- to disclose to the buyer any material defect in the property 1[or
in the seller’s title thereto] of which the seller is, and the buyer is not, aware, and which the
buyer could not with ordinary care discover; In the Case “Ganpat Ranglal V/s Mangilal
Hiralal” High Court held that the seller is not bound to disclose such faults which is really
known by buyer or otherwise he is in know of the information.

2. Liability to Submit Document: to produce to the buyer on his request for examination all
documents of title relating to the property which are in the seller’s possession or power;

3. Liability to Submit Document as to Entitlement: to answer to the best of his information

all relevant questions put to him by the buyer in respect to the property or the title thereto; in
the case of Laxmidas & Company V/s D.J. Tata it has been held by the Mumbai high court
that if the seller does not answer for such questions then the contract may be rescinded by the
buyer.

4. Liability to Excecute Conveyance: 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;
5. Liability to Protect Document: between the date of the contract of sale and the delivery
of the property, to take as much care of the property and all documents of title relating thereto
which are in his possession as an owner of ordinary prudence would take of such property
and documents.

6. Liability to Deliver up Occupation:- to give, on being so required, the buyer, or such

person as he directs, such possession of the property as its nature admits; in the case Darpan
V/s Kedar Nath17 it has been held that if Seller does mistakes in delivering up to possession
the buyer can file a suit against seller.

7. to pay all public charges and rent accrued due in respect of the property up to the date of
the sale, the interest on all encumbrances on such property due on such date, and, except
where the property is sold subject to encumbrances, to discharge all encumbrances on the
property then existing.

Right to Seller:

According to section 55(4) of transfer of property act 1882

1. Right to get Rent and Profit: to the rents and profits of the property till the ownership
thereof passes to the buyer.

2. Right to get Interest on Unpaid buying money: where the ownership of the property has
passed to the buyer before payment of the whole of the purchase-money, to a charge upon the
property in the hands of the buyer, any transferee without consideration or any transferee
with notice of the non-payment, for the amount of the purchase-money, or any part thereof
remaining unpaid, and for interest on such amount or part from the date on which possession
has been delivered. In “Subba Rao V/s Vasudev Shastri” the A.P High Court decided that the
seller is entitled to get interest on selling-money only when the possession of sold property is
given to buyer.

Section 56, Marshalling by subsequent purchaser: 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 mortgaged-debt
satisfied out of the property or properties not sold to him, so far as the same will extend, but

17
1912 ILR 39 Cal 704
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.

The term marshalling means to collect or gather and then arrange in proper order, in case of
differences or conflicts in interests or claims rearrange in such a way that there is justice and
maximum satisfaction to all. The doctrine of marshalling has been set out under section 56
and 81 of the Transfer of Property Act 1882. Section 56 lays down the provision of
marshalling by subsequent purchaser under sale and section 81 lays down the provision of
marshalling under mortgage. The rule of marshalling safeguards the interests of all the
mortgagees whereas the purpose of the rule contribution is to safeguard the interest of the
mortgage.

Marshalling

Under section 81 of the Act “when the owner of two or more properties mortgages the
property to one person and subsequently mortgages two or more properties to another person,
the new mortgagee is, in the absence to the contrary, entitled to have the mortgage debt
satisfied out of the property or properties not mortgaged to him. So far as the same will
extend but not 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.”

This section applies to mortgages in which the mortgagees have the same debtor. In such a
case the first mortgagee might have one or more properties and the second mortgagee might
have some of those properties and advanced loan without notice of the earlier encumbrance.
In such a case the mortgagee is entitled to Marshall securities and the first mortgagee shall
proceed against the properties which have not been encumbered in favour of the latter.
(KosuriKoteswara Rao v.KothuVenkataramana Rao18.

Under section 56 of the Act “when a person who owns one or more properties mortgages
them to a person and subsequently sells one or more properties to third party, the buyer is
entitled to have his mortgaged debt satisfied out of the property or properties not sold to him
so far as the same shall extend but not prejudice the rights of the mortgagees or person
claiming under him or any of the person who has for a consideration obtained an interest in
any of those properties.”

The mortgagee who has the means to satisfy his debt out of the properties shall exercise his
rights and not prejudice the rights of the purchaser of one of those properties

The object to be achieved and the principle involved under section 81 and section 56 is the
same. These doctrines are based upon the principle of equity. The interest of both the
precedent and subsequent mortgagees are protected under this section. It aims to provide
justice to the mortgagor and the mortgagee and is based on the maxim “equality is equity”.
The first mortgagee shall not do any act that will harm the interest of the second mortgagee.

Illustration

18
AIR 1973 AP 46
X is the owner of property A, B and C. X mortgages all three properties (A, B, C) to Y.
Subsequently, X mortgages property B and C to Z. Hence under the rule of marshalling Y can
satisfy is debt out the property A, B and C. If the debt of Y can be satisfied out of property A
alone then property B and C should be left untouched. However, if Y’s debt cannot be
satisfied out of property A alone then he can proceed to satisfy his debt from property B and
C also.

Case law

D.C. Johar And Sons Ltd. vs Mathew19–Two brothers (A and B) who owned individual
properties mortgaged their properties to Bank 1. Subsequently one of the brothers (A) also
mortgaged his properties to Bank 2. Bank 2 contended that Bank 1 should proceed against the
properties of the other brother (B) first. The court held that this case would not fall under
section 81 as there should be a common debtor (mortgagor) of the properties.

In a leading English Case Aldrich v. Cooper, Lord Eldon stated that in a case where a person
has two funds, he shall not by his election disappoint or prejudice the rights of the parties. He
should demarcate the interests and satisfy the precedent mortgagees debt having due regard
of the subsequent mortgagees. Hence, he reiterated the doctrine of marshalling and held that
marshalling can be done in a way by arranging the securities so that one can satisfy various
claims.

Essentials of the Doctrine of marshalling:

1. There should be one common mortgagor between two or more mortgagees. The owner
who is the mortgagor should own two or more properties and out of which he should
mortgage one or more properties to two or more mortgagees.

2. There should be a subsequent mortgage of the said properties to another person.

3. The precedent mortgagee should satisfy his mortgage debt out of the properties exclusively
held by him (if any) and then proceed to satisfy the remaining debt out of the other properties.
In other words, the subsequent mortgagee is entitled to have the mortgage debt satisfied out
of the property not mortgaged to him.

4. For the application of the doctrine of marshalling notice to the subsequent mortgagee of the
prior mortgage is not relevant.

19
AIR 1962 Ker 106
The Kerala High Court while pronouncing a judgment in the matter of M.P Varghese Vs.
Annamma Yacob & Anr.20, on 05.08.2020, observed that-

“The purpose of Section 57 of the TP Act is unmistakable from its tenor that it is intended to
assist any party to the sale of an immovable property, which is subject to an encumbrance, to
fructify the sale for its fair value after receiving in deposit – for payment to the encumbrancer
– the capitalised value of the periodical charge, or the capital sum charged on the property,
together with incidental charges. It thus enables the parties to a sale to invoke the jurisdiction
of the court for the purpose of fulfilling their contracts, notwithstanding the encumbrances on
the property”.

In this matter, the Appellant wanted to sell his property which he has acquired from a
partition deed. The said deed contained a covenant that the Appellant has to pay a sum of Rs.
500/- to his sister (Respondent herein) within a year, failing which the said amount would
stand charged on the property. However, due to some personal issues between the parties, the
Respondent has refused to accept the amount of Rs.500/- and execute necessary receipt in
Appellant’s favour. The Appellant had approached the District Court u/s 57 of TP Act,
volunteering to deposit the amount of Rs.500/- in favour of the first respondent, so as to
obtain a declaration from the said court that the property is free of the said encumbrance
however, the District Court dismissed the same on a misdirection as to the scope and
amplitude of Section 57 of the TP Act.

The High Court taking opposite view from the District Court observed that “there can be little
ground for divergence that the provisions of Section 57 of the TP Act would come to play in
a case of this nature, whether the sale been conducted by the court or in execution of a decree
or by parties outside court”.

Since there are hardly any precedents in regard to Sec 57 of TP Act, the Court examined it
very closely and carefully from both its academic and practical ambit. The said section with
the exception of its last two sub-sections is almost a verbatim of Sec 5 of the English
Conveyancing and Law of Property Act, 1881, therefore the Court has taken reference from
Wilberforce v. Wilberforce21, on the utility and purpose of sec 5.

Section 57 also provides that in the case of sale of immovable property subject to an
encumbrance being sold by a court, or in execution of a decree, or out of court, any party to it
can apply for a declaration that the said property is free of such encumbrance; in which event,
the appropriate court may direct or allow payment, sufficient to meet the encumbrance on the
property, into court. There is thus no doubt that this section is intended to facilitate sale out of
court, as much as it is for sale by a court or in execution of a decree.

The Court also held that sec 57 of TP Act is wider in its amplitude than Section 83 or Order
XXXIV Rule 12 of the CPC, since it permits the court to declare a property free of

20
MFA No. 47/2020
21
1915 1 Ch 94
encumbrance even against the will of the encumbrancer and even in the case of sales not
directed by Order XXXIV of the CPC.

However, reiterating the provisions voiced by the Hon’ble High Court of Madras in
Mallikarjuna Sastri v. Narasimha Rao22, it was noted that sec. 57 cannot be applied when it
comes to a charge or encumbrance already adjudicated by a court and which has become part
of a decree or even in a case of adjustment of a decree out of court.

BIBLIOGRAPHY

BOOKS AND STATUTES

22
1901 ILR 24 Mad 412
1) Singh Avtar (Dr), transfer of property act, 6th ed., Universal law publishing Co., New
Delhi, 2021

2) Tripathi, G.P. (Dr), transfer of property act, 17 th ed., Central law

publications,Allahabad

3) Sinha R.K., transfer of property act, 15 th ed., Central law publications, Allahabad

4) Transfer of property Act,1882

WEBLINKS

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