Actionable claim under Transfer of Property Act

DEFINITION OF ACTIONABLE CLAIM

According to Section 3 of the Transfer of Property Act, 1882  actionable claim means :

Unsecured money debt

A debt may be secured or unsecured. Where the creditor takes security from the debtor for repayment of his money, the debt is secured debt. If debtor gives the security of his immovable property, the debt is secured by way of mortgage. Where security is some movable property, it is pledge or hypothecation. On the other hand, if there is no security of any movable or immovable property, the debt is unsecured. According to Section 3 only unsecured debt is an actionable claim. Debt secured by way of mortgage, pledge or hypothecation is not an actionable claim. ‘Debt’ in this Section does not mean only ‘loan’. Any obligation to pay a certain or definite sum of money may be called a ‘debt’. For example, claim of ‘arrears of rent’ is an actionable claim. ‘Debt’ may be existent, accruing or conditional: 

  • Existent Debt – Where a debt or sum of money has already become due and is payable at present, the debt is existent.
  • Accruing Debt – Where a debt or sum of money is at present due but it is payable not now but on a future date, the debt is accruing. Accruing debt is due at present but becomes payable only on a future date. It was held in Poothekka v. Annamalai[1] that a claim for salary to fall due in the next month is an accruing debt and as such an actionable claim
  • Conditional or Contingent Debt. – Where the claim for a sum of money exists but the payment depends upon the fulfillment of any condition, the debt is conditional. Where the claim of money is subject to some uncertain future event which may or may not happen, the claim is contingent.

Claim to beneficial interest not in possession of the claimant

Right of a person to take the possession of a movable property from the possession of another, is the actionable claim of that person provided that the claimant has beneficial interest, that is, the right of possession in that property. Following requirements are necessary for consulting an actionable claim –

  • The claim is to some movable property.
  • The movable property is in possession of another person.
  • The beneficial interest or the right of possession of the claimant is recognized by the Court.

A person can claim possession of a movable property of which he has right to possess but it is not in his possession. Moreover, the claimant must also have right of possession, if he has no legal right of possession, the claim is not actionable claim.

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INSTANCES OF ACTIONABLE CLAIMS

Some of the claims recognized as actionable claims are:

  • Claim for arrears of rent.
  • Claim for money due under insurance policy.
  • Claim for return of earnest money.
  • Right to get back the purchase-money when the sale is set aside.
  • Right of a partner to sue for an account of the dissolved partnership firm.
  • Muslim woman’s claim for her unpaid dower/
  • Right to claim benefit under a contract for the purchase of goods.
  • Right to get the proceeds of a business.

In Sunrise Associates vs. Govt. of NCT of Delhi & Ors[2], the Supreme Court held that the lottery ticket has no value in itself as it is mere piece of paper. Its value lies in fact that it represents chance or right to conditional benefit of winning prize of greater value than consideration paid for transfer of that chance. It is nothing more than token or evidence of this right. Three ingredients in the sale of lottery tickets, namely, (i) prize; (ii) chance; and (iii) consideration. The bench held that the sale of lottery tickets is an actionable claim.

TRANSFER OF ACTIONABLE CLAIMS

Section 130 makes it clear that actionable claims are transferable properties. Any kind of transfer, that is, sale, gift, exchange or mortgage of an actionable claim is possible.

MODE AND EFFECT OF ASSIGNMENT

According to Section 130, transfer of actionable claims, whether with or without consideration, must be made by an instrument in writing. The instrument must be either signed by the transferor or by his duly authorized agent. There cannot be oral assignment of any actionable claim. However, registration of the same is not necessary to effect the transfer. It is also not compulsory that there is a separate deed for transfer. If there is an endorsement transferring the right under a promissory note, the actionable claim is deemed to be transferred and the transferee is in position to recover money due under the promissory note without obtaining a decree on the debt itself.

Transfer of actionable claims takes effect after execution of the instrument. The execution is complete when the transferor puts his signature or thumb impression. After execution, all the rights and remedies of the transferor passes on to the transferee. The assignee himself becomes entitled to recover the claims and sue in his own name. As the assignee becomes ‘owner’ of all the rights and liabilities of the actionable claim transferred to him, he is subject to also the liabilities present.

NOTICE OF ASSIGNMENT

According to Section 131, notice is not necessary to perfect the title of the assignee of a debt. However, until the debtor receives notice of the assignment in accordance with law, his dealings with the original creditor will be protected. Accordingly, notice is necessary to protect the interest of the assignee. In the absence of notice, the transferee shall lose his claim which is paid to the transferor. This Section provides following two requirements for a valid notice:

  • The notice must be in writing and state the name and address of the transferee.
  • It must also be signed by the transferor or his duly authorized agent or, where transferor refuses to sign, it must be signed by the transferee or his agent.
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LIABILITY OF TRANSFEREE OF ACTIONABLE CLAIM

According to Section 132, after execution of the instrument assigning actionable claim, all the rights and liabilities in respect of the claim will pass on from transferor to the transferee. The liabilities and equities, to which the transferor was subject to at the date of transfer, become the liabilities and equities of the transferee. Transferor can get no better title than the transferor. The assignee is bound by the liabilities of the assignor being transferred even if the assignee had no notice of such liabilities.

WARRANTY OF SOLVENCY OF DEBTOR

When a debt is transferred the transferee may run the risk of losing the claim in such circumstances when the debtor is an insolvent. As a precautionary measure, the transferee should assure the transferor that debtor is solvent. Section 133 provides that when the transferor of a debt gives warranty as to solvency of the debtor, in the absence of any contract to contrary, the warranty applies to his solvency only at the date of transfer. When the transfer is for consideration, any such warranty extends only to the amount or value of such consideration. However, this rule is applicable only where the transferor actually gives such warranty. It is open to the parties to contract any contrary stipulation.

MORTGAGED DEBT

Actionable claim is a property and transfer of this property by way of mortgage is possible. Actionable claim is unsecured money debt. This debt may be secured by another debt (actionable claim). So, where a debt is transferred for securing another existing or, future debt it is considered to be a transfer of an actionable claim by way of mortgage. Section 134 provides the following rules under which the money realized out of such debt is to be appropriated:

  • The debt received by the transferor or recovered by transferee is to be applied in payment of the cost of such recovery.
  • It is to be applied towards satisfaction of the amount secured by the transfer.
  • If any residue remains after the above mentioned payments, the remainder is to be given to the transferor.

ASSIGNMENT OF RIGHTS UNDER POLICY OF INSURANCE AGAINST FIRE

The general rules for assignment of actionable claims are unsuitable to the assignment of rights under the insurance policies of fire or marine. This is because of the fact that such rights cannot be assigned without transfer of the property insured. Mere transfer of such policy cannot entitle the assignee to get ownership of the property insured.

INCAPACITY OF OFFICERS CONNECTED WITH COURTS OF JUSTICE

Section 136 states that the persons specified in the Section cannot be assignees of actionable claims. Both the transferor and transferee must be competent persons and the property must also be transferable within the meaning of Section 6 of this Act. This Section specifies the persons who are legally disqualified to a be a transferee for the transfer of actionable claims. According to this section 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 or interest in any actionable claim. It further provides that 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. The object of such prohibition is to ensure the impartiality of judiciary. In Kerakoose v. Serle[3], the privy Council has stated the following: “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.

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However, the above mentioned persons cannot buy or deal with another person’s actionable claim privately, but they can sell their own actionable claims.

SAVING OF NEGOTIABLE INSTRUMENTS, ETC.

The expression “mercantile document of title to goods” includes railway receipt, warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorizing or declaring to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods hereby represented.

Under Section 137 documents which are in the nature of negotiable instruments are exempt from the operation of the provisions of this Chapter. Negotiable instruments are regulated by the Negotiable Instruments Act. Normally, negotiable instruments are assigned by endorsement and delivery of possession or, if payable to bearer, by delivery alone. So, the assignment of stocks, shares or debentures or instruments which are for the time being, by law or custom, negotiable, or any mercantile document of title to goods, has been exempted from the operation of this Chapter. ‘Mercantile document of title to goods’ have been enumerated in the Explanation to this section. Their transfer is governed by the law or custom of the merchants. A Railway Receipt is a document of title to goods. In Commissioner of Income Tax v. Bhopal Textiles Ltd[4]., the Supreme Court held that when it is handed over to the consignee on payment, the property in the goods is transferred.

A negotiable instrument may be transferred also like any actionable claim under this Act. Section 137, while giving an additional privilege to mercantile documents, does not restrict the transfer of negotiable instruments otherwise than by way of an endorsement.

[1] AIR 1926 Mad. 1173

[2] 2006 (5) SCC 603

[3] (1846) 3 MIA 329

[4] AIR 1961 SC 426

 

REFERENCES

Dr. R.K.Sinha, The Transfer of Property Act (Central Law Agency, Allahabad, 20th edn., 2019).

  1. S. Rama Rao, Transfer of Property Act (MSR Law Books)

G.C. Venkatasubharao, The Transfer of Property Act, 1882 (C.Subbiah Chetty & Co., Chennai, 16th edn., 2019).

Author: Aditi Shanmugam,
Chettinad School of Law, 2nd year/ Student

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