An Eternal Practice from the Ancient Times to Modern Society
The article ‘Concept of Exchange under Transfer of Property Act: An Eternal Practice from the Ancient Times to Modern Society‘ by Sanchit Sinha and Sourav Kumar propounds the system of exchange and the relevant provisions of the Transfer of Property Act from that perspective. The Authors give a brief idea about the properties including those of intellectual properties. The article also explains the distinction between exchange and other forms of transfer. The authors have cited various case laws to make the concept easily graspable for the readers.
Property is a vital component of a person’s socio-economic existence. Juridically, the property is a collection of rights in an object or piece of land. Over time, the term has come to imply both physical property and intellectual property, such as copyrights and patents. The economic importance of property, however, is more dependent on its dispositions than on its intangible contents. Consequently, a significant area of civil law has been property law. The Transfer of Property Act of 1882 governs the inter vivos, or between living individuals, transfer of immovable property, and certain of its rules also apply to the transfer of movable property.
Prior to this legislation, the Anglo-Indian courts mostly utilised English equitable principles to immovable property transactions. The Act, which consists of 8 chapters and 137 parts, was passed by the legislature during the colonial era to create a clear and standard statutory rule governing transfers of immovable assets throughout India.
Types of Transfers
Sale is the most basic type of property transfer when one title is transferred from one person to another in a single transaction. Sale is the transfer of ownership from one person to another in return for money. Section 54 of the Transfer of Property Act refers to the selling of real estate.
Transfer of property by a mortgage occurs when a property is mortgaged to secure a loan and, when the debt is in default, the property is transferred from one person to another. Mortgages are discussed under Section 58 of the Transfer of Property Act.
In a lease, possession rights rather than ownership rights are transferred. It is not the transfer of ownership of the property, but rather a transfer of a temporary interest in it. Sections 105 through 117 of the legislation refer to leasing.
An exchange occurs when one item is transferred in exchange for another. The provisions pertaining to the Exchange in the Transfer of Property Act (TPA) are found in Section 118.
A gift deed is when one person freely and without compensation gives any existing movable or immovable property to another person. The Act’s (TPA) Section 122 states that in this type of transfer, the donee’s acceptance is vital.
In order to put an in-depth emphasis on the provision of exchanges, we will restrict our research to Chapter VI of the Act i.e.; of Exchanges.
Concept of Exchanges under Transfer of Property Act, 1882
The practice of exchange of goods dates back to time immemorial. There have been numerous instances in the historical text where we can find that people used to exchange their goods through the barter system. This practice got carried out very robustly and had been practised even in modern times. This concept got its place in to the legal statutes and even in the Indian property law statutes that is Transfer Of Property Act 1882, a Chapter of Exchanges had been encapsulated.
However, chapter VI of the Transfer of Property Act deals with the concept of exchanges and it consists of only 4 sections. But it is pertinent to note that this age-old practice has a very important and significant importance in the transfer of ownership of the property through exchanges. Chapter VI consists of sections 118 to 121 of the Transfer of Property Act 1882. Let us now deal with the concepts given in such provisions to understand the process of the transfer of property through an exchange.
If we look into the definition of section 118 which talks about the exchange, it says,
When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an “exchange”.
In other words, it can be said that the provision of exchange means transferring ownership of one thing for the ownership of some other thing.
For example, when a person transfers the ownership of his car in return for the transfer of ownership of the house, is said to be a transfer made by way of exchange. Here it can be seen that these two persons, transferors and transferees are mutually agreeing to transfer the ownership of one property for the transfer of ownership of another’s property hence it can be said that these transactions are exchanged. It can be noted that exchange as it has been defined in section 118 of the Transfer of Property Act, includes in its ambit a change of movable property with another movable property or a change of movable property with that of immovable property.
It is important to note that a transfer of ownership for consideration of money is called a sale and on the contrary sale made without any consideration is called a gift.
It is very important to note, that when a transfer of ownership of a thing or property is transferred for money only it will not be considered an exchange but will be called a cell. But when a transfer of ownership of a property or thing is done after giving some money in addition it will be included under the ambit of exchange. We can understand this concept with an example, say when a person transfers the ownership of his property worth ₹2000 in exchange for another person’s property, worth 1500, and in addition to maintaining the equality of value the transferee also Pais ₹500 in cash the whole transaction will be called as exchange.
Mutual ownership transfer occurs during an exchange. A transfer of money in return for another transfer of money is an exchange. According to Section 121, each party guarantees the validity of the money he has delivered in return. The transmitted funds must be real. Money that is donated cannot be fraudulent or counterfeit.
The person who paid genuine money but did not receive genuine money in exchange would be entitled to obtain his money back.
The concept of exchange as a means of transfer of property comprises the three most important objectives which need to be fulfilled in order to make the transfer legit and permissible in the eyes of law.
The three objectives are :
- Mutual Exchange
- The Object of Exchange must Be Lawful
- Impermissibility of Oral Exchange
This mainly indicates that the parties are on the same line and at a consensus to transfer or exchange the two things in return to each other. For instance, if a transfer his property to be, then it is the duty of b to transfer his own property in return for the transfer of property from a. It is very important that the transfer is made from both sides and not just from the hand of one of the parties.
For instance, in the discharge of a wife’s maintenance claim, a transfer by the husband to the wife is not an exchange if the wife does not transfer the position of something to the husband. Another example can be when a document in which a decree has been set off against another and a balance has been made up by the transfer of such land is not an exchange since the two items are not mutually transferred.
The Object of Exchange must be Lawful
Any kind of such transfer comes naturally under the ambit of contract law and such transfers need to follow the contractual terms. So, the object of exchange between the parties must not be unlawful as such unlawfulness in the nature of property or goods aims at defeating the provision of such law and the whole transaction will be invalid. For instance, if parties to the contract are interested in a deed of exchange to compromise a criminal proceeding between the parties, then it can be said that such an exchange is unlawful and invalid in the eyes of law. The above notion was laid down in one of the landmark judgements, Srihari Jena v. Khetramohan Jeena, AIR 2002 Ori 195, where a deed of exchange was signed to bypass and compromise a criminal proceeding.
Impermissibility of Oral Exchange
An amendment in Section 49 of the Registration Act was brought in 1929 and thus inserted and made it clear that registration is necessary under the Transfer of Property Act. This made it clear that a deed of exchange only through an oral agreement cannot be a valid one as such an unregistered Exchange will not be admissible as evidence. They are not admissible as proof of any transaction affecting any immovable property included therein if they are not registered, and they have no effect on any such immovable property. If an exchange transaction affected any movable item worth Rs.100 or more, it had to be done through a registered instrument.
What’s the difference between different types of transfer and exchange?
Due to the plain language of the definitions of the exchange and its concept it is pertinent to note that sections 118, 119 and 120 have some kind of the same footing as a sale in the legislative drafting and are almost called a sale in every respect. But it is very important to note and point out that there are differences which lie in the nature of consideration. If you look into transfer of ownership in both kinds of sale and exchange, the transfer of property through sale is done to transfer of ownership for money.
However, in the case of an exchange, the transfer of such ownership of property is for ownership of any other property. Transfer of property through the exchange is being made in a similar manner as that of sale is applicable. Even the parties involved in the such transfer have similar rights and liabilities as that of a seller and buyer. Such a distinction between both types of transfer can be said that in a sale, there is always the price, but in exchange, there is no price. However, it is also needed to point out that money may be added to anything which has been exchanged to equalise the value of such property in exchange.
It is also important to put analysis on the difference between an exchange and a partition. If you define the term partition, it is set to be a major arrangement in which several owners have the right over the property separately which they held in common in the past. Differentiating both the concepts, an exchange is a practice which is brought and enforced through contracts between the parties, whereas the right of partition is the phenomenon which is the natural incident of a property and there is no need to enter into a contract for that purpose.
In partition, as it is a natural incident each party has much interest in the entire property as the other party. There lies no exclusivity of ownership in the case of partition. However, in exchange, the party exchange their properties and had no interest in each other’s property prior to the happening exchange.
Features of Exchange
- Ownership Transfer: As part of an exchange, some existing property’s ownership must be transferred. Property division is not a transfer of ownership since ownership refers to the transfer of the owner’s whole interest in the property.
- The Properties in exchanges don’t have to be immovable; they might be both movable and immovable. Exchanges between movable and immovable property are possible.
- Barter is a Form of Exchange: Barter is the exchange of one movable item for another movable item. It is the exchange of ownership in one piece of movable property for ownership in another piece of movable property.
- Mode of Transfer: According to Section 118, the sole way to transfer property as part of an exchange is in the same way as property is transferred through a sale. As a result, section 54’s formalities must be followed. When both properties are mobile, only delivery of possession without registration may affect an exchange. If the value of the immovable properties is greater than Rs.100, registration of the document is required; otherwise, registration is optional for immovable properties.
The deed of exchange must be a legally binding contract in order to be legitimate. When the deed was signed in order to settle legal disputes between the parties, it was decided that because the exchange’s goal was illegal, both the contract and the exchange were invalid.
When one participant in a property exchange did not obtain the property he was entitled to in the transaction, it was decided that he was entitled to the return of the property he had transferred.
The court determined that once a joint family property is divided, whether through a family agreement or a deed of division, the jointness of the properties is severed. For instance, two brothers traded homes they each owned independently. They could only have traded the items, which were valued at more than Rs 100, through a registered instrument.
Rights and Liabilities of Parties in Exchange
Transfer of Property through an exchange also gives the transferor and transferee some rights in order to protect their interest and safeguard them from being exploited. Sections 119 and 120 talk about the rights and liabilities of the parties. In the event that one of the parties to the exchange loses the property received by him as a result of a flaw in the other party’s title, Section 119 allows for a contingency.
If a party to an exchange (or any person claiming under him) is deprived of the thing received in exchange due to any flaw in the other party’s title, such other party is liable to him (or any person claiming under him):
(a) for the loss caused by such flaw; or
(b) for the return of the thing transferred at the discretion of the person so deprived if the thing is still in such other party’s possession (or his legal representative or representative).
This remedy, however, is contingent upon the conditions of trade, indicating an opposite purpose. This covenant cannot be assumed if the parties have explicitly agreed upon the opposite.
Under this provision, the person who has experienced loss because of the other party to the exchange’s faulty title has two options for redress:
- he may seek compensation for his losses;
- he may withdraw the object he has transferred.
However, the second remedy is only accessible in the following three circumstances:
- where the property is still in the other party’s possession, or
- in the care of his legal agent; or
- transferred to another person from him without payment;
The Supreme Court in Jattu Ram v. Hakama Singh, AIR 1994 SC 1653, held that entries made by a patwari in the official records do not create a title, so the opposing party was obligated to return the property (land) to that extent when there was a defect in the title of the land received by one party to exchange as a result of false entries made by the patwari and the party was deprived of some portion of land as per stipulation.
The parties to exchange rights and obligations are not addressed in Section 120. It only states that each participant has the obligations and rights of a seller with respect to what he delivers and has the obligations and liabilities of a buyer with respect to what he receives. As a result, the participants in the exchange have the same rights and obligations as a seller and a buyer in a sale. One thing is given and another is taken or received in exchange. Each participant thus possesses the obligations and rights of both the buyer and the seller. The Sales of Goods Act, of 1930’s regulations may also apply if the traded-in properties are movables.
Social engagement, exchange, and transfer are mandated by the very nature of society. Movable or immovable property is transferred from one person to another in a variety of scenarios, under a variety of conditions, and for a variety of reasons.
The concept of exchange and its inclusion in the Transfer of Property Act has been of immense importance in the transfer of property between parties. Since time immemorial, through the barter system, the concept of exchange has stayed alive in society and has been carried on since then with some peculiar changes in its characteristics.
The practice of exchange has been followed in great numbers and has always been a reason for a plethora of contractual and sale disputes. Yes, the transfer of ownership in exchange does not involve only money, there has been also the scope of some fraudulent acts by any of the parties. So, the legal framework in the strand in the transfer of property act has been well-updated and versed with the changes which are compatible with the current legal system.
However, there still needs strengthening of the provided laws, which can depreciate the rate of disputes occurring to transfer of property through the exchange. Such loopholes need to be detected and resolved to make the Transfer of ownership more efficient. It is our duty and responsibility of the government to safeguard the interest of the people by implementing and amending laws which are in consonance with the present time. With this, the ancient practice of transfer of property will be kept alive and will go on to make the transfer of property more approachable to the people.