The legality of ownership of property is not always adequately established by looking only into the title deed, Khata certificate and the Encumbrance certificate. Factors that examine whether the seller is competent to transfer the property under sale also comprise
a) Competence to contract present in both vendor and purchaser
b) The succession law applicable to the vendor, if the property is acquired by him under inheritance
c) The domicile of the vendor and
d) Legitimacy of the birth of the vendor.
The description of the vendor and the purchaser, appearing as the first component of a Sale Agreement for an immovable property (‘SA’, hereafter), will therefore do well to contain the age, religion, domicile and parentage of the parties, especially of the vendor, to help obviate any legal flaw in the intended sale. Although such details would help, there exists no statutory requirement in India to mention them in the agreement.
The arguments to support mentioning of each such detail in the description of the parties to SA are as under.
Relevance of Age
The mention of the age will, however, confirm that the parties are not minors under the section11 of the Contract Act, 1872, and are competent to sign the SA. The age is also a necessary factor, as section 7 of the Transfer of Property Act, 1882 (TPA, henceforth) expressly prohibits transfer of property by a minor. The section does not, however, prohibit transfer to a minor. Therefore, transfer to a minor is only voidable and enforceable by the minor himself or any person acting on his or her behalf.
Relevance of Religion
A reference to the community or religion of a party sometimes becomes relevant, when the personal law of succession becomes germane to the title of the property. Even within a religion itself, say, Hindu religion, the inheritance laws governing immovable property quite fundamentally vary from one school of thought to another. For example, the process of inheritance and, therefore, the succession to property, under the Mitakshara School – enunciated by Vignaneshwar, a jurist of the eleventh century, – is in sharp contradistinction to the Dayabhaga School of the same religion, codified by Jimuthavahana, a jurist of fame one century later. The Dayabhaga School did not enunciate a codified law as the Mitakshara School did, but made a digest of all the contemporary customs and usages. It prevailed in West Bengal, while the Mitakshara School continues to be endemic in the rest of India.
While Dayabhaga is one composite school, the Mitakshara School is sub-divided into four schools that differ in details regarding adoption and inheritance of immovable properties. These sub-schools are:
a) The Benares School prevailing in northern and north-western India;
b) The Mithila School prevailing in Bihar;
c) The Davida or Madras School, prevailing in southern India; and
d) The Maharashtra or the Bombay School, prevailing in western India.
However, with the passing of the Hindu Succession (Amendment) Act, 2005, major differences in the succession of a Coparcener to the property of a Hindu Undivided Family, based on birth and survivorship, practised under the Mitakshara and Dayabhaga schools have been ironed out.
(i) Christian Succession law
The Indian Succession Act, 1925 governs the law of succession to an immovable property of a Christian. Flowing from it, the rules of succession are set out in sections 31 to 49 of the Act. Typically, where a Christian man dies intestate, his widow shares his property with his lineal descendants in the ratio 1/3:2/3, unlike a Hindu widow sharing property of her husband dying intestate, equally among surviving children of the deceased.
(ii) Special Conditions of Succession for Parsis
After the 1991 Amendment of the Act, S.51 lays down three simple rules, which apply to all Parsis, male and female, dying intestate.
1. If a Parsi dies intestate, leaving a widow (or widower) and children, the widow (or widower) and each child get an equal share.
Thus, when a Parsi A dies intestate, leaving his widow B, and his son C, each of them will be entitled to ½ of A’s property. Likewise, if B, a married female, dies, leaving her widower A, a son S, and a daughter D, each would get 1/3 of B’s property.
2. If at the time of death a Parsi has no widow (or widower), but only children, each child gets an equal share.
Thus, when a Parsi A dies intestate, leaving behind him only three children, X, Y and Z, each child will get 1/3 of A’s property.
3. If a Parsi dies intestate, leaving one or both parents (in addition to children or widow or widower), each parent gets a share equal to half the share of each child.
Thus, when a Parsi A dies intestate, leaving a widow B, a son C, and his father, F, then B and C will get equal shares (that is, one share each), and F will get a half-share. In other words, B will get 2/5 of A’s property, C will get 2/5 and F will get 1/5 of such property.
The purchaser will do well to ensure that the property put up for sale under SA have not exceeded these limits.
(iii) Succession to Property by Muslim
A Muslim, whether a Sunni or a Shia, cannot transfer more than one-third of his estate by way of a will. Also, he cannot make a will of any part of his estate to one or some of his own heirs to the exclusion of other heirs. If the subject-property under SA exceeds such limit, the intended sale by the beneficiary-vendor would be void. Further, if the subject-property is in lawful custody of a Muslim man’s wife resulting from his failure to pay her the agreed amount of deferred dower, the sale of such property may run into obstructed possession.
Transfer of Property and Domicile of Owner
“Domicile” is not defined in the Indian Succession Act, 1925. However, it is commonly accepted that the domicile of a person is the place where he has his “true, permanent home and establishment to which he intends returning”. This implies two things: one, existence of a residence or establishment; and two, an intention to return to it finally. A residence set up by a person in transit and in the course of a business, which is not the one to which he wishes to return after his business is over, does not constitute domicile.
Domicile plays an important role in transfer of property, as some States in India may restrict ownership of property by an ‘alien’, that is, a person whose domicile is outside the State. Where, however, a Christian intestate, for example, leaves behind an immovable property in India, succession to such property is regulated by section 5 (1) of the Indian Succession Act, 1925, regardless of the country of his birth or his domicile. The intending purchaser of such property under SA would do well in examining the devolution of its ownership.
Legitimacy of Birth
An illegitimate Hindu child is barred from succession to HUF property but is not so barred from becoming a donee under a gift or a legatee under a will of his biological parent. However, a child born of an illegal Sunni marriage or of a void Shia marriage becomes disentitled to inheritance. The description of the vendor in the SA, if Muslim, should help verify his status vis-à-vis the ownership of property under SA.
Exhaustive narration of all the facts pertaining to the vendor’s title to the property, its origin and manner of its development to him are not required to be narrated to make SA effective; only the facts showing a prima facie title standing in vendors favour are sufficient.
Recitals should be brief, numbering only two (i) that the vendor claims to be the title holder and (ii) that the vendor agrees to sell the property and the purchaser agrees to purchase the property at a price and on conditions further stated in the SA. If the intended sale is subject to any exceptions or reservations, the vendor is obligated to disclose them in the Recitals. An exception is a benefit that is already remaining as a part of the property before its transfer, while a reservation is a new benefit that may be granted upon or after transfer. Retaining the right of mining over the land under transfer is an example of exception, and granting an easement right together with or subsequent to transfer is a reservation.
Description of the Property
The property may be described either in a schedule by means of a map and the boundaries, or within the body of the SA in words. The means adopted may be either of the two and not both, for repetition may breed contradiction. In practice, description of the property is copied from the existing title deed held by the vendor word-perfect to avoid incongruity. The manner of description would do well to conform to section 21 and 22 of the Registration Act, 1908, to avoid issues with the sub-registrar at the time of registration.
Consideration, Earnest Money and Mode of payment
The vendor may stipulate an amount to be paid by the purchaser to the vendor upon execution of the SA. This amount may be percentage of the total purchase price which is agreed by the parties for the transfer. The amount paid would be an earnest money showing the bona fides of the purchaser in his honouring the agreement. The purchaser will forfeit the earnest money, if he defaults in purchasing the property at the agreed price. In this sense, earnest money becomes a part payment paid in advance and tantamount, therefore, to a guarantee for the vendor that the purchaser will indeed purchase the property.
Where, however, both the parties agree to consider the amount so paid by the purchaser as a ‘security deposit’, the amount cannot stand forfeited as against the defaulting purchaser but shall be returned to him, unless the vendor proves damages flowing to him from such default. On the other hand, where the vendor fails to complete the sale, the earnest money or the security deposit, or any other form of money received by him under the agreement, would be a charge on the property under section 55(6)(b) of the Transfer of Property Act, 1882 (TPA). The purchaser can enforce the charge to recover his payments by sale of the property through a decree. Using nuances of terms, earnest money may be argued to be something by way of a deposit and vice versa, depending on the intentions of the parties gathered from a close reading of the agreement in each case.
There is no bar in paying the agreed price in cash. Under section 13 of the Indian Coinage Act, 1906 and section 26 of the Reserve Bank of India Act, 1934, coins and bank notes are legal tenders. The vendors, therefore, may refuse to accept payment made by cheque or draft. However, as amounts involved in property deals are generally large, payment by cheques or drafts are generally in vogue. If a cheque so issued is dishonoured, the sale itself will not become bad; the vendor will have the purchaser under the money suit in civil law or a criminal suit under section 138 of the Negotiable Instruments Acts, 1881. The practice is for the purchaser to pay the vendor a bank draft or cash or both partially, in the presence of the sub-registrar at the time of the registering the conveyance.
Under section 55(1) (a) of TPA, the vendor is bound to:
a) Disclose any material defect in the property or his title;
b) To produce all documents of the title; and
c) Meet all requisitions on title made by the purchaser.
Further, under section 55(2) of the Act the vendor is deemed to warranty the title or his right to sell. Therefore, even in the absence of a specific clause in SA, the vendor is bound to make out a marketable title and warranty the title.
The vendor may sometimes place restrictions on the purchase’s right to examine the title in full. This happens when the vendor is not certain about his own ability to make out a marketable title, particularly when he is not in possession of allthe documents. Such restrictions could be that the purchaser
a) Will not ask the vendor for any document after a specified period of time, or
b) Will not investigate the vendor’s title to the property further, or
c) Will assume the contents of every document shown as correct.
Such restrictions will amount to a contract to the contrary under section 55 of TPA debarring the purchaser from raising objections even if he later finds any defects in the documents or in the title of the property.
Delivery of Possession
Where property is partly or fully occupied by tenants, the SA should contain a clause stating that the vendor would deliver possession of the occupied part by attorning the tenants to the purchaser. Attornment means acknowledgement by the tenant that he will henceforth be the tenant of the purchaser on the same terms until their alteration by mutual consent. This must be made by a written document executed by the vendor, which is a condition absolute for enforcing performance by the vendor. Interestingly, even where the purchaser fails to prove that there was an agreement for delivery of vacant possession, in the absence of a contract to the contrary, he shall be entitled to it by virtue of section 55(1)(f) of TPA.
Period of completing obligation
It is not necessary that SA should specify a period of life within which each party should perform his obligation. It is only expected that for an agreement to be good in law, it should either be performed within a reasonable time, not remain perpetually. Where a SA carries no termination period, either party may serve a notice to the other, making time as essence of the contract, calling upon the other to perform his promise within a specified time (which itself would be reasonable). Upon non-performance by the other, the notifying party can terminate the agreement unilaterally. However, in order to do so successfully, the notifying party should be able to show that the words and phrases employed in the agreement demonstrates that the parties intended that time is of the essence of the agreement.
In case of sale of an immovable property, time can be said to be of the essence only in the following cases:
1) Where the parties have expressly agreed to perform their respective obligations within a specified time;
2) Where the circumstances and the nature of the subject matter indicate that the parties intended to treat stipulated time as of essence;
3) Exceeding the stipulated time for performance by the purchaser will result in a loss to the vendor arising out of a provable prior commitment made by him with a third party; and
4) Where originally the time is not treated as the essence but a party has failed to carry out the contract and the other party gives a reasonable notice to the defaulting party making time an essence and calling upon him to complete the sale within the period stipulated in the notice.
The Supreme Court has held that in the case of sale of an immovable property there is a presumption against time being the essence even if a time is fixed for completion. The intention to treat time as of essence of the contract may be evidenced by circumstances that are sufficiently strong to displace the normal presumption (Govind Prasad Charuvedi v. Hari Dutt, AIR 1977 SC 1005). Even a clause for payment of penalty for delay does not mean that the time is of the essence (Mangal Ram v. Premanand, AIR 1972 Assam 8).
Stamp Duty and Registration
SA falls under Article 5 of the Indian Stamp Act. The duty differs from State to State. Registering a SA is, however, optional – not mandatory – as, in the eyes of section 17 of the Registration Act, 1908, it creates no interest in the property yet in favour of the purchaser.