LEGAL CHAT
Contract for sale
N.C.S. RAGHAVAN
ARAVIND RAGHAVAN
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Rights of purchaser need to be protected in property deals
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Section 54 of the Transfer of Property Act, 1882, not only defines the term “sale” and deals with the mode of effecting a “sale” of an immovable property, but also proceeds to deal with the prior stage to “sale” i.e., the “contract for sale” effected between seller and purchaser.
A “contract for sale” is a contract between the parties effected prior to the actual sale. It provides the terms settled between the parties on which the sale shall take place. It provides the legal basis for binding the parties to ensure that a sale shall take place as per the terms agreed to.
It is also made clear that a contract for sale by itself does not create interest in the immovable property sought to be sold nor does it create a charge on the immovable property of the owner/seller in favour of the intended purchaser.
Breach of contract
Therefore, it is clear that any violation of the terms of the contract by either the seller or the purchaser is tantamount to a breach of contract only and not a breach of interest in any immovable property.
It is to be noted that an interest in an immovable property is attached to such property itself and is both transferable and inheritable.
In practice, in view of the aforesaid limitations of the rights of parties under a contract for sale, certain additional legal steps are required to protect the rights of the parties in a foolproof manner.
A seller of the property is normally protected adequately as he is the owner with the actual possession of the property. It is the purchaser’s rights under a contract for sale that need to be protected. In this regard, the following steps need to be taken:
Registration
The contract for sale should be registered with the appropriate authorities. For getting the benefits available under Section 53A of the Transfer of Property Act, 1882, dealing with a part performance of contract for sale, the contract for sale must be registered compulsorily as per the provisions of sub-section 1A of Section 17 of the Registration Act, 1908.
This introduction of sub-section 1A of Section 17 of the Registration Act, 1908, has been brought about by the Registration and Other Related Laws (Amendment) Act, 2001 (48 of 2000). This amendment applies to all contracts for sale effected after the date of commencement of the amendment i.e., September 24, 2001.
Valuable right
The aforesaid part performance is a valuable right which provides what is called an “equitable title” in the hands of the purchaser even though the actual sale has not taken place. The important matters relating to the provisions of Section 53A of the Transfer of Property Act, 1882, will be taken up for discussion in the subsequent issues.
Under the Karnataka Stamp Act, 1957, read together with relevant provisions of the Indian Registration Act, 1908, and the Karnataka Registration Rules, 1965, a contract for sale of immovable property can be registered with the following incidence of stamp duty and registration fee:
Stamp duty
If relating to sale of immovable property wherein in part performance of the contract, possession of the property is delivered or is agreed to be delivered without executing the conveyance, the stamp duty payable is eight per cent on the market value of the property and a registration fee of one per cent.
If possession of the property is not delivered, the stamp duty payable is Rs.200 and the registration fee, Rs.200.
If, after such registration of contract for sale, the seller parts with possession of the immovable property to and in favour of the purchaser in part performance of contract for sale, the purchaser not only gets the aforesaid equitable title to the immovable property sought to be sold but also he is totally protected against the seller trying to avoid the effecting of the sale of the immovable property to the purchaser.
(N.C.S. Raghavan is a chartered accountant and Arvind Raghavan, an advocate)
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