This article is written by Ritika Sharma, a law graduate from the University Institute of Legal Studies, Panjab University. The article is an in-depth analysis of Section 54 of the Transfer of Property Act of 1882. It provides insights into the significant elements and ingredients of sale under Section 54, along with an explanation of various important terms related to this provision.
It has been published by Rachit Garg.
According to the Merriam-Webster Dictionary, ‘sale’ refers to “the act of selling, specifically the transfer of ownership of and title to property from one person to another for a price.” It can be both movable and immovable property. According to the Constitution of India of 1950, ‘land’ is the subject matter of the State List, while ‘contracts, including partnership, agency, carriage contracts, and other special forms of contracts, but not including contracts relating to agricultural land’ are part of the Concurrent List. Therefore, both the state and the central government have the power to formulate laws on real estate. Before 1882, the transfer of property was regulated by personal laws, i.e., Hindu and Muslim laws, or the orders under the Civil Procedure Code, 1908, or the Indian Contract Act, 1872; there was not a separate law for the transfer of immovable properties. This need was fulfilled with the introduction of the Transfer of Property Act, 1882.
The Transfer of Property Act, 1882, is the central law that lays down the provisions concerning the sale, exchange, lease, mortgage, and gift of property. It contains certain principles that act as a mandatory framework for the transfer of property in Indian states. The law related to the sale of the property is embedded in Section 54 of the Transfer of Property Act, 1882.
Explanation of Section 54 of Transfer of Property Act
Section 54 of the Transfer of Property Act contains provisions with respect to the sale of immovable property. The section is divided into the following three parts:
- Definition of sale;
- Execution of sale; and
- Contract for sale
These are briefly discussed below:
Definition of sale
Under Section 54, ‘sale’ has been defined as the “transfer of ownership in exchange for a price paid, or promised, or part-paid and part-promised”. This implies that a transaction amounts to a sale when one party transfers ownership to the other and the other party pays some amount or promises to pay some amount in return. Therefore, the two basic elements that constitute a sale under Section 54 are the transfer of ownership and money consideration.
Transfer of ownership
Ownership refers to the bundle of rights and liabilities attached to a property. Therefore, in the transfer of ownership, all the rights with respect to the property in question are transferred to the buyer by the seller. In the sale of immovable property, absolute interest is created and transferred to the buyer. A transfer of limited interest does not amount to a sale. For example, in the cases of a lease or mortgage, there is a transfer of only partial interest; thus, these are not covered within the ambit of Section 54.
Consideration is the second element necessary to constitute a sale under Section 54. The seller must receive consideration or payment for transferring the property into the name of another person. It is also pertinent to note that the adequacy of money is not a relevant factor for the sale of immovable property.
Execution of sale
Section 54 highlights that the sale of tangible immovable property cannot be completed without a registered document unless it is of a value less than Rs 100. In the case of tangible immovable property of a value less than Rs 100, the sale can be effected either by a registered document or by delivery of the property.
Contract for sale
A contract for the sale of immovable property stipulates the terms of the sale. In other words, it is based upon the agreed terms between the seller and the buyer and does not create any interest or charge in favour of any party.
Essentials of a valid sale under Section 54
According to Section 54, a valid sale consists of the following essentials:
- Parties must be competent to contract.
- The subject matter of sale must be immovable property.
- There should be a fixed consideration or price for transferring the property.
- The mode of transfer must be either registration or delivery of possession, depending upon the kind of property.
Let’s discuss these essentials in detail.
Parties must be competent to contract
The first point that is to be taken into consideration before entering into an agreement is that both the buyer and the seller should be competent to enter into a contract.
Competency of the buyer
The buyer/transferor/vendee will be competent to contract if he/she conforms to the following:
- Firstly, the buyer must not be disqualified from purchasing a property under any Indian law. For example, under the Transfer of Property Act, 1882, an official of a Court is not qualified to purchase actionable claims.
- Secondly, the buyer must be a natural or juristic person. This implies that the sale includes the property sold by a corporation or a firm.
Competency of seller
The seller/transferee/vendor will be competent to contract if he/she conforms to the following:
- Firstly, the seller must have the competency or legal right to sell the property. In the case of V. Ethiraj v. Smt. S. Sridevi (2014), a person purchased the property knowing that the seller has only partial rights to the said property. This breached the competency rule, and the Karnataka High Court held it to be an invalid sale of the property.
- Secondly, the seller should have ownership of the property.
- Thirdly, the seller must not be disqualified from purchasing a property under any Indian law.
- Fourthly, the seller must not be a minor or of unsound mind.
- Fifthly, the seller must be a natural or juristic person.
The subject matter of sale must be an immovable property
The Transfer of Property Act, 1882, deals with the sale of immovable property. Therefore, it is another essential ingredient to constitute a sale under Section 54 of the Transfer of Property Act, 1882. Immovable property can be tangible as well as intangible. A detailed explanation as to what constitutes immovable property is provided under Section 3 of the Transfer of Property Act. It includes things attached to the earth and excludes standing timber, growing crops, and grass. Furthermore, examples of intangible immovable property are rights of fisheries, the right to extract minerals, reversion, etc.
The immovable property must exist at the time when the sale is to be executed.
As already discussed, price or money consideration is an important element of the sale. It includes any form of money, for example, currency notes, cheques, coins, etc. However, everything that has value does not constitute money. For example, work done on land, such as cleaning or digging a well, cannot be considered a price within the scope of this provision.
Although it is not necessary that the price be adequate, it should be fixed at the time of execution of the sale deed. In the case of Hakim Singh v. Ram Sanehi and Others (2001), the validity of a sale deed was in question since the price fixed was very low compared to the market value of the property. However, the Allahabad High Court declared the sale to be valid. Moreover, it is not relevant that the payment of money has actually been made at the time of execution. The consideration could be either paid or promised, or partly paid and partly promised.
The Karnataka High Court, in the case of Smt. Rathnamma v. Smt. Shanthamma (2019), observed that the statement “you shall execute the sale deed when we pay sale consideration” qualifies the essential element of the presence of money consideration in the sale deed, and no actual payment is required for proving the validity of the sale deed.
The mode of transfer is confirmed in the following two ways:
- Delivery of possession; or
- Registration of sale deed.
It depends on the nature and price of the property. The second part of Section 54 stipulates that unless the property in question is a tangible immovable property of a value less than Rs. 100, the sale is valid only through the registration of the sale deed.
How is sale affected under Section 54
As discussed above, conveyance, or mode of transfer, is one of the essentials of sale under Section 54. Therefore, a sale can be effected only by a registered sale deed or delivery of possession, as the case may be. This can be understood with the help of the following discussion:
Delivery of possession
In a tangible immovable property worth less than Rs. 100, the sale can be executed without registration, i.e., by mere delivery of possession of the property. The delivery of possession can be proved by any act that reflects that the property has been transferred. As the immovable property cannot be handed over to another person, therefore, the acts, such as handing over the keys to the house, or residing at such a property are some instances where transfer of possession can be proven.
An important observation with regard to the delivery of possession was made by the Delhi High Court in the case of Karan Madaan and Others v. Nageshwar Pandey (2014). In this case, there was no actual delivery of possession; however, it was mentioned in the sale deed that the possession had been delivered. It was held by the Delhi High Court that in the case of an executed sale deed, it is not required to look into the facts to determine whether there was a delivery of possession or not.
Registration of sale deed
Registration of the sale deed is essential in all kinds of transactions except those where tangible immovable property of value less than Rs. 100 is to be transferred. In the case of Subramaniyan (Died) v. Venkatachalam Pillai (2011), it was noted by the Madras High Court that the sale price of the transferred property exceeded Rs. 100, however, there was no registration of documents. It was an oral sale, and no mandate under Section 54 was followed, thus, the Court held it to be an invalid sale. Thus, registration is required in the following cases:
- Where the property in question is an intangible immovable property.
- Where the value of the tangible immovable property is less than Rs. 100.
With respect to the registration of the sale deed, the following points must be taken into consideration:
- In case of the transfer of the right to catch fish or extract minerals, registration is necessary, as these rights amount to intangible immovable property.
- Another point to be noted is that when a movable property and an intangible immovable property of price greater than Rs.100 are to be sold in the same transaction, it is essential to register the sale, otherwise, it will not amount to a valid sale.
- The title or right in property is transferred on the date of execution of the registered sale deed and not on the date of registration of the sale deed.
- With respect to the transfer of title or ownership of property, another point to be marked is that if the registered sale deed contains some terms and conditions for the transfer of ownership, then it will be transferred according to them and not on the date of execution of the registered sale deed. For example, the terms may stipulate that there will be a transfer of ownership after the payment of the full price of the property. Thus, it completely lies in the intention of the parties.
- By way of a registered sale deed or sale under Section 54, all the rights and privileges related to the sold property are also transferred. Also, the right of reconveyance is transferred by the vendor to the vendee.
- The sale by a registered sale deed is absolute and cannot be divested by a unilateral deed of cancellation. The remedy lies only under Section 31 of the Specific Relief Act, 1963, where the court can order the cancellation of the sale deed.
- Section 49 of the Registration Act, 1908, lays down the effect of non-registration of documents that must be registered according to law. According to this provision, any unregistered document cannot be used as a piece of evidence in any case related to the said unregistered property. In the case of Shesh Mal And Ors. v. Harak Chand And Ors. (1982), the plaintiff contended that the defendants cannot use an unregistered document as evidence. The Rajasthan High Court affirmed this and held that the sale was not effected in accordance with Section 54 of the Transfer of Property Act, 1882, therefore, following Section 54 of the Transfer of Property Act, read with Section 49 of the Registration Act, the unregistered document cannot be used as evidence.
- In the recent case of Ravipudi Lakshminarayana v. Parvathareddy Sreedhar Anand (2021), the Andhra Pradesh High Court reiterated that any immovable property of value more than Rs 100 is to be compulsorily registered. Also, it was highlighted that in order to fulfil the mandate of Section 54, the document is to be registered under Section 17(1) of the Registration Act, 1908.
Contract for sale of immovable property
Contract for sale of immovable property specifies the terms under which the sale is to be carried out. The sale is executed in accordance with the terms stipulated in the contract for sale. A contract for sale reflects the intention of the parties and, thus, can be created without executing the sale deed. It may contain the terms agreed upon by the parties for a future transaction.
The statement “it ( i.e., the contract for sale) does not, of itself create any interest in, or charge on, such property” under Section 54 clearly reflects that no interest or charge is created with a sale deed in favour of any party. This implies that the delivery of property or the payment of consideration will not constitute a valid sale, even if there is a contract for sale. A registered sale deed is necessary. The following points specify the remedies available to the parties who form a contract for sale with the intention of executing the actual sale without a registered sale deed:
- The buyer can file a case under the Specific Relief Act, 1963 to compel the seller to execute a sale deed.
- In the cases where the buyer has paid some amount for the transfer of property, he/she can take a charge of the property to compel the seller to return the same.
The following table highlights the differences between a sale and a contract for sale:
|Basis||Sale||Contract for sale|
|Definition||Sale under Section 54 of the Transfer of Property Act, 1882, refers to the transfer of immovable property in exchange for a price or money consideration.||Contract for sale can be defined as the terms settled between the buyer and the seller for the purpose of sale of the property.|
|Creation of interest or charge||In a sale, there is a transfer of the title or ownership of property from the seller to the buyer.||It has been expressly specified under Section 54 that a contract for sale does not create any interest or charge on the property to be sold.|
|Precedes or accedes||Sale is executed after the formation of a contract for sale.||A contract for sale always precedes the actual sale of the property.|
The Andhra Pradesh High Court in the case of Reddi Demudu v. Kannuru Demudamma (1996) examined the differences between sale and contract for sale. The Court stated that “they are disjunctive and not conjunctive. Both are separately defined and dealt with”. A contract for sale merely lays down the terms of the agreement, while the sale is effected only after the satisfaction of all the ingredients specified under Section 54.
A ‘contract of sale’ is also different from a ‘contract for sale’. The former is a contract that contains all the agreed terms of the sale, and the parties are ready to execute the sale deed. However, the contract for sale is not a complete contract and merely contains the intention of the parties to carry out actual transactions in the future.
How is transfer of property under the Transfer of Property Act different from the Indian Contract Act
The purpose of the Transfer of Property Act, 1882, is to provide a law regarding the transfer of immovable property. However, the Indian Contract Act, 1872, also has the same object of forming an agreement between the parties for the sale of property or other transactions. However, both statutes are different from each other. In fact, the Transfer of Property Act, 1882, completes the Indian Contract Act, 1872, in laying down the law on the transfer of immovable property. Let us understand how!
With respect to the transfer of property, the Indian Contract Act aims at transferring the property rights to the other person; however, the motive of the transaction is not fulfilled unless the property in question actually gets transferred. The Transfer of Property Act is a provision that fills this gap in the Indian Contract Act. Therefore, it can be said that until 1882, the laws regarding the transfer of property were not sufficient, and the Transfer of Property Act, 1882 acts as a complete code. Similarly, this statute of 1882 made a law with respect to the testamentary and inter-vivos transfer of property that was previously guided by personal laws.
What are the differences between sale, mortgage, exchange and lease
Sale, exchange, mortgage, and lease are different modes of transfer of property. The similarity among all of them is that in all these transactions, the property or interest in the property is transferred from one party to the other. On the contrary, they differ from each other on several grounds. The following table illuminates the differences between sale, mortgage,exchange, and lease:
|Definition||Sale refers to the transfer of ownership in property in exchange for money.||Mortgage refers to the transfer of an interest in immovable property as a security in exchange for some loan granted or an existing or future debt or liability.||Exchange can be defined as the mutual transfer of ownership from one person to the other. In simple terms, it is known as ‘barter’.||Lease can be defined as a transfer of rights in a property for the purpose of enjoyment or benefits attached to it. It is for a certain time period and works on the basis of the terms agreed between the parties.|
|The relevant provisions under the Transfer of Property Act||It is defined under Section 54.||It is defined under Section 58||It is defined under Section 118.||It is defined under Section 105.|
|Parties||The transferor and transferee are commonly known as seller/vendor and buyer/vendee respectively.||The transferor and transferee are commonly known as ‘mortgagor’ and ‘mortgagee’ respectively.||Since the property of one party is ‘changed’ with the property of another party, they are both transferors and transferees at the same time.||The transferor and transferee are commonly known as ‘lessor’ and ‘lessee’ respectively.|
|Consideration||Sale is considered a valid sale when one of the parties pays or promises to pay some consideration.||A mortgage does not require any consideration. It gives rise to the interest in specific property of the mortgagor when he/she owes something to the mortgagee.||There is no involvement of money consideration in the transfer via exchange.||There might be involvement of money consideration in a lease, however, a lease agreement is valid even without consideration, for example when a share of crops is agreed to be transferred by the lessee to the lessor. It completely depends upon the terms of the agreement.|
|Mode of transfer||Sale is affected via a sale deed.||This mode of transfer is completed with a mortgage deed.||The mode of transfer in case of exchange is the same as that of sale under Section 54, therefore, it is effected with a sale deed.||A lease deed contains the terms and conditions with respect to the lease.|
It is apparent that for the transfer of immovable property under Section 54 of the Transfer of Property Act, 1882, transfer of ownership and money consideration are important elements. The sale is not valid if the parties are not competent to contract or if there is no reference to the price to be paid by the buyer to the seller in the sale deed. Furthermore, the sale is effected by a registration deed unless the property to be transferred is a tangible immovable property of a value less than Rs. 100. Therefore, according to the Transfer of Property Act, the mandate of a registration deed depends upon the price and kind of immovable property.
Frequently Asked Questions (FAQs)
Does Section 54 of the Transfer of Property Act, 1886 apply to the whole of India?
The Transfer of Property Act, 1882, is not applicable in all Indian states. When it was enforced, it was not made applicable to Bombay, Delhi, and Punjab because of their own property laws. For example, it is not applicable in the state of Punjab. However, since 1955, the second and third parts of Section 54 of the Transfer of Property Act, 1882, are applicable in Punjab. Thus, unlike before, the sale of intangible and tangible immovable properties of value greater than Rs. 100 is now valid only by a registered sale deed.
How is the sale of immovable property different from the gift of immovable property?
The definition of gift is provided under Section 122 of the Transfer of Property Act, 1882. It is a voluntary transfer of property from one party to the other, without consideration. Clearly, the primary distinction between the transfer of property by sale and gift is that the latter must not involve consideration, while consideration is an essential element of the former.
What changes were made by the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 in Section 54 of the Transfer of Property Act, 1882?
Section 30 of the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976, omitted the phrase ‘value of one hundred rupees and upwards’ in Section 54 of the Transfer of Property Act, thereby making the registration of intangible immovable property mandatory, even if it values less than Rs. 100.
Do hire-purchase agreements constitute sale?
No, the hire-purchase agreements cannot be called a sale because the property is not transferred. In these agreements, possession of the property is transferred, and money is to be paid in instalments. However, unlike in a sale executed under Section 54 of the Transfer of Property Act, the vendee can refuse the transaction anytime before all the instalments are paid.
This question was taken up by the Supreme Court in the case of K.L. Jauhar and Company v. Deputy Commercial Tax Officer (1965). In this case, there was a contract of sale of the house under which it was agreed that the buyer would pay some amount every month to the seller. However, he could not pay the monthly instalments in time. The Apex Court declared that the seller can repudiate this contract as this contract of sale amounts to a hire-purchase agreement.
Therefore, in the hire-purchase agreements, the parties have the right to terminate the contract since the payment is made in instalments.
- Sinha, R.K. (2019) The Transfer of Property Act, Allahabad, Central Law Agency.
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