10 September 2020

Transfer of property – Procedural way out for removal of encumbrances

The Kerala High Court has explained the procedural way out for removal of an encumbrance from an immovable property under Section 57 of the Transfer of Property Act 1882 (‘TPA’). It is noteworthy that an operative, substantive and procedural way out to facilitate the realisation of the intrinsic value of encumbered estates and other immovable properties within the annals of TPA is very rarely been invoked in court of law.

Brief Facts:

The appellant who is the petitioner on the files of Additional District Court, and the second respondent were siblings who had received certain extent of the property of their father through a registered partition deed in 1980 (‘Partition Deed’). The Partition Deed contained a covenant that both the brothers must pay a sum of INR 500 each to their sister (who is the first respondent), within one year of the Partition Deed, failing which the first respondent was allowed to recover it, for which purpose, the said amounts would stand charged on the respective properties of the appellant and the second respondent.

While the first respondent accepted the payment from the second respondent, she refused to accept payment from the appellant due to her personal reasons and as a result of which the property allotted to him under the Partition Deed (appellant’s share of the property) was still burdened with this obligation. Appellant said that the obligation on the appellant’s share of the property is more so an obligation because the stipulations in the Partition Deed make it incumbent on the first respondent to accept the amount of INR 500 and execute necessary receipt in the appellant’s favour.

Section 57 of the TPA enables a party to the sale of an encumbered immovable property to apply to the court for a declaration that the said property is freed from such encumbrance on deposit of sums as may be adjudged by the court in accordance with the Section 57 of TPA and for issuance of a vesting order or an order of conveyance required to give effect to the sale. 

In the first instance, the appellant had approached the District Court under Section 57 of TPA for effecting the sale free from any encumbrance. The District Court disallowed the appellant's plea for discharge of encumbrance on the appellant’s share of the property holding it to be not maintainable.

Arguments advanced:

The appellant urged that even in the case of a sale conducted out of court, the jurisdiction of the statutorily competent court can be invoked by any party to it. He submitted that this is evident from the usage of the words 'or out of court' in Section 57(a) of the TPA and thus asserted that the District Judge erred in issuing the impugned order.

The appellant prayed that since the amount of INR 500 was fixed and did not include any additional charges or interest, the sum must be treated as a capital sum, and the appellant should be allowed to invoke Section 57 of the TPA. The appellant prayed that the impugned order of the District Court be set aside, and the High Court permit him to deposit the amount of INR 500 favouring the first respondent and declare that the appellant’s property is free of the said encumbrance.

The first respondent submitted that Section 57 of the TPA cannot be invoked except in the case of an immovable property and that it could not apply to out of court sales and the appellant must discharge the debt according to the provisions of Chapter IV of the TPA which deals with mortgages of immovable properties and charges. It was further submitted that the first respondent was not willing to accept the money due to deep-seated conflict with the appellant. The first respondent however did not challenge the validity or effectiveness of the Partition Deed and further admitted that the Partition Deed only charges the appellant’s share of the property to the sum of INR 500 and nothing more.

Observations of the Court:

The Kerala High Court, while analysing Section 57 of the TPA, described it as ‘a very efficacious, substantive and procedural mechanism to facilitate the realization of the deserving and intrinsic value of encumbered estates and other immovable properties’. After deliberating on how Section 57 of TPA has been adapted from Section 5 of the English Conveyancing and Law of Property Act, 1881 (‘English Act’) and the fact that there are hardly any reported precedents touching the Section 57 of TPA, in India, the High Court examined the various cases in which the English Courts have dealt with the similar provision in their jurisdiction.

The High Court elucidated that the object of Section 57 of TPA is to enable a sale to be effected and the property to be transferred to the purchaser so that the purchaser may get a full and complete title to it without causing too much of disturbance to the vested rights or other rights more than is required, since the purchase of land subject to an encumbrance is not usually a desirable investment.

Further, the High Court distinguished the role of the court in ‘court sales’ in which the court can ‘direct the payment’ and the role of the court in ‘out of court’ sales in which the court can ‘allow payment’, and finally concluded, that Section 57 of TPA is intended to facilitate sale out of court, as much as it is for sale by a court or in execution of a decree.

Additionally, the High Court in this case MP Varghese v. Annamma Yacob & Ors. [MFA No 47/2020, Judgment dated 05-08-2020] struck down the erroneous interpretation by the District Court to the extent that the Section 57 can be invoked only after the sale is over and instead made it clear that assistance of the court can be sought even while the sale is proposed. Further, the Court set aside the impugned order of the District Court and permitted the appellant to deposit the amount of INR 500 to the first respondent, by depositing it in the District Court; in which event, the same will be entitled to be withdrawn by her. The High Court also declared that on such payment by the appellant, the appellant’s share of the property will stand freed from the charge on it which was created in pursuance of the terms of the Partition Deed.

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