LEGAL CHAT
Stakes in the sale of property under litigation
R.L. NARAYANAN
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The effect of the relevant provisions of law may thus affect your property dealings, though you may not have knowledge of the pendency of the proceedings
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PHOTO: S. THANTHONI
CAUTIOUS BUYING: Take care to screen the property before purchase.
The decision to purchase a property involves various factors. While purchasing the property, a screening procedure is followed. This includes checking the documents for title verification, scrutinising the original title deeds, perusing encumbrance certificates, looking at tax payments, etc.
There can be other factors only a seller may know and is required to disclose. These include matters such as agreements entered into by the seller with third parties, power of attorney granted by the seller and any pending litigation on the property. Nowadays, it is very difficult to verify whether the property is subject to litigation or otherwise.
If, during the pendency, in any court, of any suit or proceedings, which is not collusive and in which right of any immovable property is directly and specifically in question, then such property cannot be transferred or otherwise dealt with by any party to the suit so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the court and on such terms and conditions as the court may impose.
The effect of the relevant provisions of law may thus affect your dealings relating to the property, though you may not have knowledge of the pendency of the proceedings.
Final decree
The suit or proceedings shall be deemed to commence from the date of presentation of the plaint or the institution of proceeding in a court of competent jurisdiction. It shall further be deemed to continue until the suit or proceedings had been disposed of by a final decree or order to the complete satisfaction or discharge of such decree or order had been obtained; or if the discharge cannot be obtained by reason of expiration of any period of limitation prescribed for the execution of such decree or order by law applicable at the relevant point of time.
In your sale deeds or agreements, you would have noticed the usage of the words "lis pendens." The term "lis pendens" applies to pending litigation. This doctrine has been introduced on the basis that if such restriction is not there, then it would be impossible that any action or suit relating to an immovable property could be brought to a successful termination. If the property were to be allowed to be transferred without condition, then in all matters relating to immovable property, the person instituting the suit will be driven to commence fresh proceedings repeatedly and even if he or she is able to do so, there would be no guarantee that the proceedings will end successfully.
The rights of the affected person are, however, subject to an election. In other words, if the affected person chooses to accept the sale, then the sale may still be valid. However, if such person opts to question the sale, then, at his instance, the sale can be made null and void. There are many factors that will be considered by the court as relevant including the nature of right or interest sought to be transferred, whether the party is really affected or otherwise and what is the extent and the manner in which the rights are affected and whether the proceedings can be construed as pending. . The transferee will also be entitled to take certain defence, including the claim that the right to avoid the transfer has been lost.
Buying in good faith
Assume that a person has purchased a property without knowledge that it is subject to a pending litigation. Subsequently, he or she comes to know of the same and is shocked to find that the affected party wants to avoid the sale. The immediate reaction would be that he or she did not have notice of the pending litigation and therefore is a purchaser who has purchased the property in good faith. Circumstances may also be such that it may be obvious that but for such lack of notice, the person may not have purchased the property at all. Even in such cases, the rights of the affected party will normally prevail. As it is a matter of public policy, the question of acting in good faith or having no notice may not be permitted as a defence by the court. Further, in every case, it is possible to take a stand that the purchaser has purchased the property in good faith and without notice.
The position does not change even if the transfer, pending litigation, is by a registered deed whereas the matter in issue in the proceedings relates to an unregistered document or an instrument. The principle embodied in the provision also ensures that the rights of the purchaser are not defeated by collusive suit or proceedings. A collusive suit means a suit or a proceeding wherein the claim put forward is fictitious and the contest over the suit or proceeding is unreal. The actions of the parties are so arranged between themselves as to obtain an order from the court, without the knowledge of the court concerned, which is in accordance with the agreement between the parties. This has to be distinguished from fraudulent proceedings where orders of court are obtained by means of fraud. In such cases, the proceedings are started with a view to injuring a party with fraudulent intentions, but there is no understanding between the parties on the conduct of the suit or the proceedings.
A suit can be collusive since inception or can become collusive during the process after inception. If the parties have entered into any agreement with the purpose of defeating the rights of a transferee, then the rules relating to pending litigation will not apply. Suits, in which orders are finally passed without one of the parties being present, in the absence of fraud or collusion, will be construed during pendency as pending litigation. During the pendency of appeals and execution proceedings also the doctrine will apply.
If a transfer has happened prior to institution of suit or proceedings, then the doctrine of lis pendens will not apply. If a litigation is pending in a court which has no jurisdiction over the property, then the rules relating to transfer of pending litigations will not apply. In matters like disputes for recovery of money, when there is no dispute relating to the property, the rules will not apply. Suits in which the issue relates directly to the property such as suit for specific performance, suit for enforcement of mortgages, suit for partition are all basically matters relating to immovable property.
A suit for injunction may or may not involve a specific issue relating to the immovable property and other facts and circumstances have to be looked into for deciding whether such matters are those covered by other principles or otherwise.
As already stated, a transferee of a property, which was the subject matter of a pending litigation, will be bound by the final orders of the court. Such transferee is not entitled as a matter of right to be made a party to the suit, even though he or she may have acquired an interest in the property. However, the court has the discretion to add a transferee as a party to the suit if it is satisfied that the same is required for a fair decision in the matter.
The transactions relating to immovable property can only be screened to a limited extent. It is also vital that you have clean reference of the parties involved. Your rights may ultimately turn out to be matters relating to relationships, disclosures and trust.
The author is partner, Rank Associates Advocates, Chennai.
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