Is it Legal to Transfer  Property Under Insolvency  or Securitization Act? 

Ajay Kummar Pandey(Advocate Supreme Court of India ) - August 07, 2022 - - 0 |

These days it is very common to see that in one stroke of judgement, the entire property of an individual or a company is transferred to a receiver in insolvency proceedings. So, the moot  question is whether  such an act of transfer of property, without any sale deed, legal or illegal. Even if it is not a violation of Property Act, 1882,  even then the question  is whether Insolvency Law is in conflict with Transfer of Property Act, 1882 and which law is going to be supreme. 

Special Acts and the Transfer of Property Act 

The Transfer of Property Act was enacted in order to provide definite statutory laws that regulated the transfer of property. Before the Transfer of Property Act in 1882, the laws relating to the transaction of property were customary. The Act came into force in 1882 and has been amended to suit the needs of time and the last it was amended in 2002. 

In day-to-day life, the Transfer of Property Act, often comes into conflict with Insolvency Law, Securitisation Act, SC & ST Act and many other special acts .Primarily, the act was enacted to save innocent individuals from the clutches of money lenders, who used to grab their property on one pretext or other. But over the years, functions of different institutions including the banking and financial institutions have changed and new functions have been introduced for financing the industries etc. 

Today, the banks and other financing institutions are the major moneylenders of credit and to safeguard their interests, many new laws have come into effect, which are often in conflict with Transfer of Property Act, 1882. Here, we are going to discuss some of the major conflicts and the final judgements, which are binding in matters of transfer and sale of immovable property.  

In a transfer of property by act of parties, the property is transferred even though the transferor is not a living person or is not alive on the date of such transfer. The property is automatically transferred by the process of law. The act of the transferor or the transferee does not affect it in any way. 

In the cases where the property is transferred by the will or by rules of inheritance, the last holder of the property does nothing. It takes place through the application or by procedures worked out in the laws of inheritance. In this way, the transfers effectuated by the orders of the courts are by application and operation of law. This is because the transfer is not made by the owners of the property but happens by the execution of a court order. 

In the case of Mardia-Chemicals v Union of India, it was held that what was conceived correctly in the situation then prevailing may not be so in the present-day situation. New institutions have come into being and as such the legislation is also framed in that situation. Therefore, these become more relevant. In this case, certain sections of the Transfer of Property Act, the general law on the subject, has been overridden by the special enactment namely the Securitisation Act. 

 In case of insolvency proceedings, the property of the insolvent vests in the Official Receiver. The vesting is not applicable as under the Transfer of Property Act. The vesting of the insolvent property in the Official Receiver is not through any formally registered sale-deed. However, the sale of the property is under the provisions of the sale as per the Transfer of Property Act thereby requiring a formal sale-deed. 

But in Wazirey v. Mathura Prasad Wazirey, a contrasting view was held by the court. But finally, the court held that the Insolvency Act would prevail over the Transfer of Property Act. Questions have arisen as to whether transfers between parties pertaining to  orders issued under legislations such as the Essential Commodities Act are ‘sales’ within the meaning of the Transfer of Property Act. 

The Supreme Court has held that a mere regulatory law if it circumscribes the area of free choice does not take away the basic character of the sale from the transaction. InHarish Chandra-Hegde v State of Karnataka and Ors, it was held that as the matter is governed by a special statute and therefore, the Transfer of Property Act, which in essence is a general legislation, would not be applicable. 

On the basis of all the above, it can be safely concluded that under the Transfer of Property Act, 1882, the transfer of property by operation of law has been excluded. The limitation to the applicability of this Act is that it only covers transfers between two persons and does not incorporate all the other modes of transfer, such as transfers through processes of law or by decrees passed in the Courts. 

It is also provided that if the laws under the Transfer of Property Act are in conflict with the other legislations, the other legislation would prevail. The circumstances and objective of the special legislations  are for a particular purpose and deals with definite areas.  As such the Transfer of Property Act which is a general law for regulation of all ordinary cases of transfer of property, is superseded by the special laws. 

One of the most important judgements in this regard is the case of Harish Chandra Hegde vs State of Karnataka. In this case cerain sections of the Karnataka Scheduled Castes and Scheduled Tribes(Prohibition of Transfer of Certain Lands) Act was enacted for safegurding  the interests of a particular section of the society.  

Therefore in pursuance of the Directive Principles of State Policy, the said act was passed. as a Special Act. As such the provisions of a general  act would not be applicable to such an act.  

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