Transfer of Property Act – Important Points

Any transfer of right/title/interest in any property (movable or immovable) in India is governed by the Transfer of Property Act, 1882 (TPA).

In this regard, it is a very important Act and thus imperative that a basic awareness of these provisions must be had to ensure compliance with this law especially in sale and gift transactions for properties situated in India.

In this post, I have tried to present an overview of important legal provisions and case laws on this law so that you can ensure that you take adequate protection and align yourself in compliance of this law.

Also read:

NRI Tax Implication w.r.t. Immovable Property Transaction in India

FEMA Implications on acquisition of property in India

Returning NRI Property Purchase in India – A Checklist

Image credit: www.thenational.ae

What can be transferred under TPA?

Property has a very wide meaning under TPA -so, even actionable claims or a reconveyence of land falls within ambit of TPA

TOPA recognizes transfer of property ONLY between living persons – a contract whereby A says that a particular property shall be transferred after his death to B, is not covered by this law – essentially, that contract becomes a “will” and will be regulated by the applicable succession law and not the provisions of this law.

TOPA does not exclude properties situated out of India. It is for the affected parties to prove that by the applicable law where property is situated, transaction is valid or not.

It may be noted that an interest in property restricted by its enjoyment to the owner cannot be transferred by him.

Family Arrangement – Whether TPA applies?

Family arrangements do not fall in the scope of TPA even if property is one of the subject matters in the deed of family arrangement. This follows that such deed will not be required to be registered in compliance to requirements under TPA. 

However, the arrangement should be bona fide – if one tries to just cloak a property transaction in name of family arrangement to escape registration requirements, it is invalid.

In MN Aryamurthy case, the Supreme Court has laid down three requirements for a transaction to be considered a family arrangement as follows:

  • Agreement amongst various family members that is intended for overall benefit of family as a whole.
  • Agreement should be with the object of compromising doubtful or disputed rights or for preserving family property or to buy peace within the family by avoiding litigation
  • There is a consideration being the expectation that such arrangement shall bring in peace, amity and goodwill amongst family members.

Partition of family – Whether TPA applies?

There are conflicting views on this point. Partition is basically regulated by the Partition Act. In some cases, it has been held that partition does not involve a transfer, it is basically an “exchange” of rights hence does not fall within TPA. However, other view is that several provisions of TPA are directly applicable to a partition transaction hence the requirements of TPA should be applicable.

Release deed – covered by TPA?

Yes. If wife A is a joint owner of property with husband B and wife agrees to release her interest in favour of A, the release transaction will fall within TPA and the deed will have to be registered as required under TPA.

Will – Covered by TPA?

No. The reason is that will is effective on “death” of the testator. Any transfer of property on death of a person will not fall within TPA. This is precisely the reason that a will need not be registered.

Who can transfer property?

Any person competent to contract as per Indian Contract Act, 1872 and has either a valid title to the property OR an authority to transfer, can transfer the property.

As per Indian contract act, there are three requirements for a person competent to contract:

  • Attained majority i.e. 18 years
  • Sound mind
  • Not disqualified from contracting by any law to which he is subject

It may be noted that considering the above, though a transfer BY a minor is void, a transfer TO a minor is valid.

Following are some examples where person has an authority to transfer:

  • Holder of power of attorney
  • Guardian of minor authorized by the court in this behalf
  • Karta of a HUF
  • Executor of a will under applicable succession law

As regards title to the property, it has been a settled law that a registrar does not have power to question or refuse registration for want of seller’s title to the property – he is under a duty to just see whether the document is stamped or not.

Oral transfer – whether valid?

For certain transactions like sale and gift of immovable property, TPA requires those to be in writing and also registered. Hence, an oral transaction for those transactions will be invalid.

However, for transactions which do not fall within above requirement of being reduced to writing and registered for example partition of joint family property, release and relinquishment of rights in a property etc., those can be executed orally.

However, it is advised that oral transactions should be avoided and everything should be documented and signed by both parties.

Conditional transfer

If there is any condition in transfer that restraints the transferee from re-transferring the property, it is void. For example, A ,B,C effect a partition of joint family property and under the terms of partition, no person has a power to sell the share, and he can sell to other family members only – this condition is void as per Section 10 of TPA. It has also been held that such a condition is void under Hindu law as well as Muslim law.

Provisions related to Joint owners

Under Section 44 of TPA, if one of the many joint owners sell his share in property to a third person, that third person gets right to joint possession and enforce partition of the property. However, if property is used for stay by a family and the said third parson is not a member of family, he does not get a right to joint possession of the property

Section 45 of TPA says that if two or more co-purchasers purchase property out of a common fund, then their ownership in the property will be to the extent of their interest in the fund.

For example, there is an FD of 10 lacs used by husband and wife to jointly purchase a flat – the funds belong entirely to the husband.

In this case, the husband is the sole owner of the property even though husband wife share husband wife share husband wife share in purchase agreement is mentioned as 30:70 or 50:50 or whatever – hence, the ownership in property depends on fund contribution and not what is mentioned in purchase document.

However, at the time of sale of that property, buyer, for TDS purposes, can safely rely on the ratio mentioned in agreement and that will be sufficient compliance.

Note that Section 45 also says that if nothing is mentioned about respective shares of property in the contract, it can be presumed that share is 50:50 – hence, buyer can use this to deduct TDS in this ratio.

Section 46 says that where immovable property is transferred, the transferors shall be entitled for individual share of property – so, if husband and wife were joint owners to the extent of 70:30 (their amount of contribution to the property), they are entitled in sale consideration to the ratio of 70:30.

I’ve seen in quite a few cases where husband and wife are in dispute and planning a divorce, husband asks buyer to pay full consideration to him without consulting the wife, and buyer makes it in good faith. Later, when wife comes to know of it, she files a case against husband and buyer regarding her share – To avoid such instances, buyer should take precaution to ask such joint owners to express their respective shares in property in the agreement itself – and accordingly, he can pay the consideration and deduct TDS in the said ratio.

 Suit filed property – Section 52 of TPA

This section says that a property which is a subject matter of any suit (in other words, a court case), cannot be transferred. This is also known as the doctrine of lis pendens.

For example:

A owns a property. A and his wife file a divorce application. Wife contends that the property is from her funds and requests for property to be made a charge for maintenance money. A cannot now sell the property except by court permission.

Another case: A transfers immovable property under a trust. Another person B claiming right to property files a suit for re-conveyance of property out of the trust. Trustee cannot sell the property except with court permission.

That is why in a lot of cases where you find properties available at a highly discounted price, barring a case where the person is in need of funds hence making a distress sale, in most of the cases there is some dispute within the family over the ownership of property or a husband is trying to sell property before the wife files divorce case in court, because once a case is filed in the court, even a lawful owner cannot sell property on his own.

Note that Registrar of Co-operative Societies is a court and proceedings under Rule 14 of Co-operative Societies Act 1912 will operate as lis pendens.

Also note that a suit filed in a foreign court will not be affected by this section. Similarly, this section does not apply to properties situated outside India.

Also note that this section applies only to immovable property and cannot extend to moveable property

Part performance – Section 53A

This is a very important section of TPA. It says that if there is a signed and registered contract in writing, transferee to the contract has already taken possession, has done something in furtherance to the contract is willing to comply with his obligations under the contract, then irrespective of the fact that the transfer has not been completed in the manner laid down in TPA, in such a case the transferor cannot enforce a right with respect to the property.

It needs to be understood that this section only tries to protect the rights of possession of transferee of an immovable property. It does not in any way give ownership to the transferee. It remains with the transferor and will be transferred only once the agreement is registered.

It may be noted that this section does not apply to gifts. Gift becomes complete on acceptance, subject to registration. This section also does not apply to oral agreements and moveable property. This section also cannot be availed in case of contracts that are null and void.

Also, the rights under the contract cannot exceed those expressly provided under the contract. For example: A gives a property on leave and license to B for 11 months. B does not vacate premises after expiry of 11 months citing his rights under Section 53A. B’s contention in this case is bad in law.

Sale of Immovable Property

Section 54 of TPA says that sale of a tangible immovable property of value > INR 100 can ONLY BE MADE BY A REGISTERED INSTRUMENT and attested by two witnesses.

There it is: all along you’ve read about this requirement – now you know that it flows from TPA.

So, any sale of property is not valid and will not be accepted as evidence in any court proceeding if it is not registered. The legal position is – the contract of sale by itself will not by itself create a title in the buyer’s hands.

So, you purchase a flat from a builder – you and builder sign the agreement and you take possession – note that until you register the flat, the right/title/interest in that flat remains with the builder and does not flow to you. The minute registry is done, you become a legal owner of the flat.

And this is why registry is so crucial. In a separate post on Registration Act, I will discuss about the time within which registration has to happen, and other points.

Note that a title transfer is considered complete the moment registry is done even where full price is not paid by the buyer – however, this can be overridden by an express clause in the sale deed that the title will be transferred ONLY when full and final payment is received by the seller (I highly advise my clients to have this clause in the deed)

Price is an essential element of agreement for sale. For an agreement executed without mention of price, and registered too, was held as invalid.

As regards consideration for the sale, can it be money or something else too? In an AP High Court decision in case of Kanigolla Lakshmana Rao vs Gudimetla Ratna AIR 2003 AP 241 – a family arrangement can also be construed as an effective consideration for an agreement for sale.

In case of cheque bounce, the transfer is void.

There are only two modes of transfer: a) by registration AND b) taking possession

In case of a registered sale deed, title passes to buyer from the date of agreement and not the date of registration.

Transfer by operation of law (for example, obtaining a probate on a will or a court auction of property) is outside the scope of Section 54 and hence such transfers need not be registered.

Title to an immovable property in India cannot pass on an oral basis or on the basis of unregistered agreement along with a receipt for payment of consideration.

Even a general power of attorney (GPA) or a will does not convey title in the property – in 2011, Supreme Court has banned GPA based sale transactions. Even for a will, the transfer happens only where court issues a probate or letter of administration.

After registration, if parties decide to cancel the contract, they cannot do so on their own by signing a deed of cancellation or a consent deed etc. and such deed of cancellation cannot be accepted for registration. The power to cancel the deed vests only with the court and can be ordered under Section 31 of Specific Relief Act – so, it is very important to be 100% sure before going ahead and registering a property. Better to take full and final payment and THEN go ahead and register the property.

As regards possession, it is held that giving keys to the house can be construed to be a valid delivery of possession. In my personal view, it is a MUST to have a letter of possession signed by the buyer at the time of handing over the keys, to evidence the exact date and time of handing over the possession because after that date & time, the flat becomes buyer’s responsibility. It is advised that a clear cut clause in the agreement should provide that the seller will hand over possession on receipt of full and final payment and buyer shall give a signed letter of possession to seller.

As regards joint ownership, it may be noted that sale by one joint owner of entire property will only be effective as against his own share in the property and not the other owner’s share.

Though under Muslim law, sale is complete by delivery of possession but Supreme Court has held that in such case, TPA will override provisions of Muslim Law and registration will be required.

Though it is the liability of seller to deliver title deeds on completion of sale, however it has been held that buyer need not deliver the deeds unless price has been paid in full. It is advised that a clear cut clause in the agreement should provide that the deeds will be delivered only once the price is fully paid.

Many a times it happens (and mostly in case of under construction properties) that even after payment of full price, builder delays registering the flat in name of buyer. Here, the buyer can bring a suit for specific performance under Specific Relief Act against the builder to register the flat in his name. Alternatively, buyer can approach consumer forum.

As regards earnest money, legal position is clear: if default is of buyer, seller is entitled to forfeit the deposit. However, if default is by the seller, he can refund the earnest money.

Gift of Property

Section 122 defines gift as follows:

“………..a transfer of certain existing movable or immovable property made voluntarily and without consideration by one person, called the donor, to another, called the done, and accepted by or on behalf of the done.

Acceptance when to be made: Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If done does before acceptance, gift is void.”

Section 123 says the following:

  • Gift of immovable property can only be effected by a signed and registered instrument and attested by a minimum of two witnesses.
  • As regards gift of movable property, transfer may be effected by either a registered instrument signed as aforesaid or by delivery.

As regards gift of immovable property, executing a gift deed and registering it is compulsion – there is no choice.

However, as regards gift of movable property, especially gift of money, though a gift deed is not required – in my view, it is better because of following reasons:

  • If the gift by relative is claimed to be a tax exempt gift under Section 56 of the Income Tax Act and there is some technical issue in the process of gifting – that is, either the gift is not accepted by donee, or donor expires before acceptance, ITD can raise an argument that it does not qualify as a gift hence the amount should be treated as undisclosed income in hands of the assessee and taxed accordingly. To avoid such a situation, gift deed should at least be in place – no need to witness it.
  • Remember that even a genuine gift can always be challenged in court for existence of undue influence. Hence, even after a person gifts an asset to his children, there may be other claimants who can challenge it after donor’s death & file a suit in the court. So, in my view, if the amount of gift is high say INR 10 lacs and above (it depends from case to case), in my view, the gift should be registered in a Sub-Registrar’s office – this gives a lot of credibility to the transaction as compared to an oral gift or a gift by unregistered deed.

  A bequest under a will is not transfer hence it cannot be considered as a gift.  

Gift between two Muslims is governed by the Muslim personal law and not TPA. Under Muslim law, writing is not essential. Even if gift is evidenced in writing, it does not require registration or attestation. Also, there is no requirement of delivery/possession transfer for being treated as a valid gift.

Though a Hindu father is responsible for maintenance of daughter under Hindu Adoption and Maintenance Act – however, if father gifts immovable property to daughter in his lifetime, there is no exemption from the requirement of registration.

A gift can be made only by a person who is competent to transfer. Hence, a gift by minor is void. However, minor can receive the gift through his guardian and the guardian will only act as a manager of the property till the minor becomes a major. It may be noted that a guardian of a property of a minor cannot make a valid gift of minor’s property. In case of onerous gift (gift along with an obligation to be discharged), the obligation cannot be enforced against the minor. On attaining majority, he will have the right to choose to either accept the gift with obligation, or return the gift.

In case of gift to two or more persons, in absence of a corresponding recital in gift deed, the presumption under Hindu Law will be that the owners hold property as “tenants in common” and not as “joint tenants”  – hence, if the intention was to create a joint tenancy, it should be expressly mentioned in gift deed and it will even override the applicable succession law.

For example, father gifts immovable property to two sons A and B. The type of ownership is not mentioned in gift deed. It will be presumed that A and B are tenants In common. A can sell his share to third party C and C will become joint owner in the property along with B. However, in case it is clearly mentioned in the deed that ownership is joint tenancy, if A dies, B becomes the sole owner of the property. Even A had written a will bequeathing his share in property to his wife, A’s wife cannot enforce her share in the court and the recital in sale deed will override the applicable succession law.

 A gift cannot be made of future property – only a property in existence at the time of making the gift can be gifted.

In case of movable property, delivery of possession is an important prerequisite to imply the intention of gift. Hence, in the following cases, there is no gift:

  • A makes a credit entry of INR 20000 in his books in account of B.
  • Husband opens a saving account in a bank and deposits INR 2 lacs in it. Account is jointly owned by husband and wife on “either or survivor” basis.
  • Husband adds wife as joint owner in the property.

In my view, in a case where there is no actual movement/flow of property to the donee, a gift deed signed by donor and accepted by done must be in place to evidence the gift in case legal issues arise at a later date.

However, in case of gift received by minor (for example, father gifting immovable property to a minor) – the fact that minor was living in the property before as well as after the transaction will not make the gift void – the question of delivery of gift by possession does not arise.

In a SC judgment in case of K. Balakrishnan vs K. Kamalam 2004 SCC 581, it has been held that it is open for a donor to transfer by gift the title and ownership of the property and at the same time reserve its possession and enjoyment to herself during her lifetime. There is no prohibition in law that ownership in property cannot be gifted without its possession and right to enjoyment.

In my view, this can become an excellent tool for succession planning. For example: Father gifts a house property to son however there is a condition in the gift deed is that father will enjoy exclusive possession of house till he is alive. In such case, on registration of gift deed, the title in the property will pass on to son but son will not have the right to possess or sell the property to a third person till his father is alive. I think this is a better option than transferring property through a will, given the fact that the chances of challenging the gift by other relatives will be much less as compared to a will.

As regards failure to pay stamp duty on gift deed, it has been held that such a failure will not impact the validity of the deed that comes into effect moment deed is registered as required under TPA.

A gift is ordinarily irrevocable. The only possibility where gift can be revoked is where the donor and done agree that on happening of a certain event (which does not depend on the mere will of the donor). It follows from this that one should be very careful in making an unconditional gift because once it is made, there is no recourse.

Let us understand by following examples:

  • Father transfers immovable property to son by way of gift and executed through a registered gift deed. Neither father nor any legal heirs after his death can challenge this transaction, irrespective of a contrary statement in the will, except a case where the gift was executed by coercion or undue influence.
  • On death of son, father transfers immovable property to son’s wife under a registered gift deed with a condition that if she re-marries, the gift shall be void. The condition is perfectly valid. If son’s wife remarries, the gift becomes void. Son’s wife cannot transfer the property again & father in law can re-claim title to the said property.

It may also be noted that if the gift is accepted but not registered, still the gift remains irrevocable. On the contrary, if there is no acceptance, even if gift deed is registered, still it will be void. This underlines the importance of acceptance in case of gift transaction.

In case of transfer of immovable property to a trust, there can be two possibilities and consequent implications as follows:

  • Owner of property vests it in a trust in which he is the sole trustee: Gujarat HC has held that such a transfer does not fall within the term “transfer” – the trust deed is a mere declaration and hence, registration is not required. On a reading of Section 6 of Indian Trusts Act, a where a settler appoints himself as the sole trustee, there is no transfer
  • Owner of property vests it in a trust managed by separate trustees: in this case, the owner of property will have to execute a proper conveyance deed to transfer property into a trust and this transaction will fall within the term “transfer” under TPA & hence will be effective only when trust is registered.

Attestation Requirements as per TPA

As regards attestation of a deed in compliance with TPA, following points may be noted:

Immovable property transfer needs to be attested by minimum of 2 witnesses

Witnesses must not be party to the contract. However, an interested person (for e.g. beneficiary not party to the deed) can be a witness. However, in my view, even beneficiaries or anyone attached to the outcome of the transaction should not be taken as a witness.

As per proviso to Section 68 of Indian Evidence Act, 1872, witness can be called to the court to confirm that he signed in presence of the person executing the document only in case of a will. In other cases (like sale or gift of property), witness will need to be called only if person executing deed denies having signed the deed.

A gift not signed by witness will be void even if it is registered.  

Witness cannot be claimed to have knowledge of the actual contents of the deed, its legality etc. – only requirement is that they have seen the person signing the deed.

The Act does not specify a particular place in the deed where witnesses should sign. As a general good practice, witness should sign fully at the end of the deed and also put their signatures on all pages. Further, ID proof and place of address of witness should also be attached/mentioned in the deed.

Doctrine of lis pendens (as discussed in Section 53A of TPA) does not apply to gifts.

Relinquishment

A deed of relinquishment of rights by a tenant in common in an immovable property has been held similar to a gift and can be used to transfer one’s interest in joint property.

Given the requirement of TPA, a relinquishment deed should be in writing and registered.

Stamp duty is similar to relatives but no discount w.r.t. transfer to relatives, as is available in case of gift

Irrevocable

A relinquishment can be challenged just like a gift deed.

Unlike a gift deed, you can draw up a relinquishment deed where monetary consideration is applicable.

For example, a person dies without a will. Some family members inheriting the property can effect a relinquishment deed in favour of others for a consideration. In this case, gift deed will not be applicable. However, relinquishment deed need to be in writing, registered and stamped.

After the relinquishment, a family arrangement can be drawn up to document the fact of death, relinquishment and new shares of select family members in the property. This document need not be registered as the “transfer” has happened by way of relinquishment deed and this document is a mere recording statement of the re-alignment of interest.


Hope the post has been of service to you. Please share your thoughts/feedback in “comments” section below.