This article has been written by Pragya Rakshita, a student of the National University of Study and Research in Law, Ranchi.

Introduction

The Transfer of Property Act was enacted in the year 1882 with the objective of codifying the laws relating to transfer of properties. This Act is not exhaustive in nature, as it does not cover all kinds of transfers, or all types of properties. The Transfer of Property Act, 1882 does not incorporate all the rules relating to the different modes of transfer, neither does it include the transfer of all properties. There are other Acts which codify the laws regarding different types of property such as the Sale of Goods Act, 1930.

This Act also does not deal with transfers by operation of law, which includes transfers in execution of a Court’s decree. [1] This Act only covers inter vivos transfers which are transfers between living persons by act of parties through express or implied contracts. Also, the Act mainly deals with transfer of immovable properties, but some of the provisions of the Act are also applicable to movable properties.

So, to know whether the Transfer of Property Act, 1882 will apply to a particular transaction or not, it is necessary to determine the mode of transfer as well as the type of property being transferred. One of the intangible properties that the Act deals with is actionable claim that is discussed further in detail.

What is Actionable Claim?

Actionable claim is defined in Section 3 of the Transfer of Property Act, which was included in the Act by the Amending Act II of 1990. Actionable claim is an intangible movable property, and its transfer is dealt with in Chapter VIII of the Act.

According to Section 3 of the Act, actionable claim means:

1. Claim to an unsecured debt
2. Beneficial interest in a movable property

These are both claims that are recognized in the Courts of law as affording relief. There are other types of claims also that afford relief and are actionable in the Courts of law, such as secured debts and tortuous suits like defamation or nuisance. But those are not categorized under the meaning of actionable claim. The term actionable claim only covers the above mentioned two types of claims.

Unsecured Debt

Unsecured debt refers to all monetary obligations of a certain amount, and that is not covered by any security in the form of mortgage, pledge or hypothecation. This is not just limited to the concept of loans forwarded by a creditor to a principal debtor. It extends to all kinds of monetary obligations, such as rent or payment on sale of property etc.

The three requirements for a transaction to qualify as unsecured debt are:

1. Monetary obligation
2. No security
3. Certainty of amount of money obligated

According to Sunrise Associates v. Govt. of NCT of Delhi [2], an actionable claim may be existent in praesenti, accruing, conditional or contingent. So, the three types of unsecured debt are:

1. Existent Debt
2. Accruing Debt
3. Conditional or Contingent Debt

Existent Debt

This is the kind of debt that has already become due, and is payable and enforceable in the present. For instance, if Mr. A sells a house to Mr. B in present, and the monetary consideration has to be paid then and there, then the consideration becomes payable right then, and this is existent debt.

Accruing Debt

If a monetary obligation is due in present, but becomes payable on a future date, then that is accruing debt. For example, if Mr. A is the employee of Mr. B and he gets his salary on the last day of every month, then his salary is accruing debt during that month, as it is due throughout the month, but it becomes payable only on the last day of the month. So, if Mr. B fails to pay the salary, then Mr. A can approach the Court to claim it only after the last date of the month, when it becomes payable.

Conditional or Contingent Debt

A debt is conditional or contingent if it becomes payable on the fulfillment of a condition or contingency.

It is called conditional debt when the stipulation is in control of the parties. For example, an agreement between A and B that A will pay Rs. 1000 if B buys C’s house, then this is a conditional debt. Here, Rs. 1000 becomes payable and B can claim it only after he fulfills the condition.

On the other hand, when the stipulation is beyond human control, then it is called a contingent debt. For instance, if A promises to pay a particular amount to B if C’s ship sinks, then since the sinking of the ship is beyond the control of the parties, so it is a contingent debt.

Beneficial Interest in Movable Property

If a person has the right to possess a movable property, then it is said that he has beneficial interest in that movable property. But if that property is not in his possession, then he has an actionable claim. So, the requirements to constitute this type of actionable claim are:

1. Movable property;
2. The movable property is not in the possession of the claimant;
3. The claimant has the right to possess that movable property.

For example, if A sells his car to B and B has completed his obligation, that is, B has forwarded the consideration from his side, then B has the right to possess the car; but if B is unable to acquire possession, then B can approach the Court to claim this possession.

But if the movable property is already in the possession of the claimant, either actual or constructive, then he cannot claim possession. So, if in the previous example, A had given the car keys to B, then it can be said that B has constructive possession, and hence, B cannot approach the Court to claim possession.

Moreover, the right to possess of the Claimant must be a legal right, which is recognized by the law. For instance, if a person of unsound mind or a minor, A sells 100 bags of wheat (or any other movable property) to Mr. B, and Mr. B also forwards the consideration from his side, that is Mr. B fulfills his obligations, then also Mr. B cannot claim possession. This is so because Mr. B does not have a legal right to possess, as A does not have the capacity to contract, and the agreement between A and Mr. B is void ab initio. Now, since the right to possess of Mr. B is not recognized legally, so this is not covered under the heading of actionable claim.

Instances of Actionable Claims

Some examples of actionable claims are:

1. Claim for arrears of rent. [3]
2. Claim for money due under insurance policy. [4]
3. Claim for return of earnest money. [5]
4. Right to get back the purchase money when the sale is set aside. [6]
5. Right of a partner to sue for an account of the dissolved partnership firm. [7]
6. Right to claim benefit under a contract for the purchase of goods. [8]
7. Right to get the proceeds of a business. [9]

In all of these instances the amount for which the suits are filed are certain and definite. So, such claims are transferable under actionable claims. 

Claims not covered under Actionable Claim

Various types of claims are not covered under the head of actionable claim, and hence cannot be transferred under the Transfer of Property Act.

The right to claim damages, whether arising out of a tortuous or contractual liability are not actionable claims. [10] This right is not an unsecured debt, even though it is a monetary obligation because of two reasons. First of all, it is an uncertain amount of money, and second, it is not a part of the original transaction. Actionable claim under the category of unsecured debt only covers the amount in the original transaction. Hence, it covers the principal amount and the interest upon that principal, as these are of a certain amount. Whereas, damages is uncertain, and hence, does not come under actionable claim.

Moreover, in cases of tortious liability such as defamation, or nuisance, the damages is uncertain and personal or attached with immovable property, and hence cannot be transferred. For instance, if A defames B, then B has the right to sue A for defamation; this right is personal in nature as B has been defamed and so, only B can have the right to sue A. So, this right cannot be transferred and it is not an actionable claim. An instance of nuisance would be if person X’s neighbour, Y, let his drain pipes overflow into X’s lawn. Here, X has the right to sue for damages for the nuisance caused by Y because of virtue of ownership that X has over his lawn. Hence, X is the only person who has this right to sue and so, it is not a transferable actionable claim. But, if X sells his property to a third person, Z, then Z, along with the property, will also receive this right to sue Y for nuisance.

In the case of Jai Narayan v. Kishun Dutta [11], it was held that a claim for mesne profits is not an actionable claim, as mesne profits are unliquidated damages and it is not a claim to any beneficial interest in moveable property, not in the possession, either actual or constructive, of the claimant. Thus, it was a “mere right to sue” and not an actionable claim.

Rights such as copyright [12], patent or trademark are not actionable claims because they already vest in the person who has it. These have their own governing Acts and are not transferable as they are the intellectual property of the claimant, and any other person cannot be allowed to claim that.

Instances of Claims not recognized as Actionable Claims

There are certain types of rights and claims which are not recognized as actionable claims, and hence cannot be transferred. Some examples of this type of claims are:

1. Right to get damages under the law of torts or for the breach of a contract: Since these are uncertain amounts of money and hence, this cannot be transferred. [13]
2. Claim for mesne profits: This is also uncertain, and so cannot be allowed to be transferred. [14]
3. Copyright, patents and trademarks: These rights are personal in nature, as these are available to that particular person. [15]
4. Decree or judgment of debt: This cannot be transferred under actionable claim, as after the judgment has been pronounced, no action subsists that could be transferred. [16]

Incapable Transferees of Actionable Claim

Section 136 of the Transfer of Property Act, 1882 declares certain groups of people who cannot deal in the transfer of actionable claims. Section 136 states that-

“No judge, legal practitioner or officer connected with any Court of Justice shall buy or traffic in, or stipulate for, or agree to receive any share of, or interest in, any actionable claim, and no Court of Justice shall enforce, at his instance, or at the instance of any person claiming by or through him, any actionable claim so dealt with by him as aforesaid.”

This Section bars Judges, legal practitioners or officers of Court from receiving any share or interest in any actionable claim, and hence they cannot be the transferee in transfer of actionable claim. Section 6(h)(3) provides that any property cannot be transferred to a person who is legally disqualified from receiving that property, that is, transfer cannot be made to legally disqualified transferees, and Section 136 legally disqualifies these persons from being transferees of actionable claims and hence, actionable claims cannot be transferred to this class of people.

The reason behind this prohibition is to ensure impartiality of the judiciary. The Privy Council illustrated the importance of this prohibition in the case of Kerakoose v. Serle [17] by stating that- “It is of great importance that no officer of a Court of Justice should be even exposed to the suspicion that in the discharge of his official duties his conduct may be influenced by any personal consideration.”

Actionable Claim is Movable Property

Actionable claim is an intangible movable property. This can be inferred from the interpretation of Section 2(7) of the Sale of Goods Act, 1930, which reads as follows-

“‘goods’ means every kind of moveable property other than actionable claims…”

Section 2(7) of the Sale of Goods Act, 1930 defines “goods”, wherein it states that goods include all kinds of movable property, except for actionable claims. This Section provides for an exception clause to exclude ‘actionable claims’ from the category of movable property. This exclusion would not have been required if the actionable claim was an immovable property. Hence, the interpretation of Section 2(7) of the Sale of Goods Act, 1930 shows that an actionable claim is a movable property.

Conclusion

Actionable claim is an intangible movable property, and it is transferable. It mainly refers to the types of claims that can be recovered through proceedings in Courts. Out of multiple such kinds of claims, the concept of actionable claim includes two types, which are claims on unsecured debt and beneficial interest in movable property. Such claims can be transferred to another person, but certain people are barred from becoming transferee of actionable claims. This bar has been imposed in order to maintain the integrity of Court proceedings. The concept of actionable claims is a highly important one that all law students must be clear with.

References

[1] Arvind Kumar v. Govt. of India, (2007) 5 SCC 745.

[2] AIR 2006 SC 1908.

[3] Daya Debi v. Chapla Debi, AIR 1960 Cal 378.

[4] Varjivan Das v. Magan Lal, AIR 1937 Bom 382; Sunrise Associates v. Govt. of NCT Delhi, AIR 2006 SC 1908.

[5] Lalchand v. Hussainio, (1927) 97 IC 257.

[6] Chinnappa Reddy v. Venkatramanappa, AIR 1942 Mad 209.

[7] Bharat Prasad v. Paras Singh, AIR 1967 All 15.

[8] Zaffar Mehar Ali v. Budge-Budge Jute Mills, (1907) 34 Cal 289; Shah Mulji v. Union of India, AIR 1957 Nag 31.

[9] Alkash Ali v. Nath Bank, AIR 1951 Assam 56.

[10] Moti Lal v. Radhey Lal, (1933) All 642; Inder v. Raghubir Singh, (1930) 5 Luck 547.

[11] AIR 1924 Pat 551.

[12] Savitri Devi v. Dwarka Prasad, (1939) ALJ 71.

[13] Moti Lal v. Radhey Lal, (1933) All 642; Inder v. Raghubir Singh, (1930) 5 Luck 547.

[14] Jai Narayan v. Kishun Dutta, AIR 1924 Pat 551.

[15] Savitri Devi v. Dwarka Prasad, (1939) ALJ 71.

[16] Govindarajulu v. Ranga Rao, AIR 1921 Mad 113.

[17] (1846) 3 MIA 329.

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