The doctrine of priority in TPA, 1882

DOCTRINE OF PRIORITY UNDER TRANSFER OF PROPERTY ACT, 1882

Author: Sankalpita Pal

Introduction

The doctrine of Priority is an interesting concept that has been statutorily implemented in the Transfer of Property Act, 1882(hereinafter referred to as TPA) under Section 48. This article will deal with how the conflicting rights created over a particular property can be resolved on the basis of the Doctrine of Priority.

Bare Provisions

Section 48 mainly induces the concept of priority from the legal maxim, qui prior est tempore potior est jure. This maxim confers that one which is first in time is better in law.

In Nandkishore v. Harjarilal[1] the Madhya Pradesh High Court held that “a transfer cannot prejudice the transferee of the right by any subsequent dealing with the property”.

Section 48(1)

This Section deals with the Priority of rights created by transfer (at different times). This provision under TPA, 1882 lays down an important principle of natural justice that the one who has the advantage in time should also have the advantage in law. This principle, however, only applies to cases where the conflicting equities of parties involved are otherwise equal. Elaborating on this point, Section 48 simply confers that no man can convey a title than what he has.

For example- if a person has already set the transfer of the property in motion, he cannot ignore the rights that were created in an earlier transaction. Section 48 is fair and absolute in its terms. It doesn’t protect or reserve, in favour of a subsequent transferee, even though he has no knowledge of the previous transfer.

The Owner of the property can either transfer all his rights w.r.t. the property or a few/part of his rights. The owner may sell or mortgage his property or give it on lease. The sale of the property automatically means the transfer of all rights of ownership by the transferor to the transferee. However, when the property is leased or mortgaged, only some of the rights are mortgaged and most of the time the owner has a better title over the property. The owner deals with the remaining rights in a lawful manner.

An owner of a property can create any number of transfers with regard to the same property, at the same time or at different times. Section 48 kicks in when the right of transfer of the same property is created at different times. The right created before in time than the other prevails. Even though the later transferee doesn’t have any knowledge of the previous transfer, his right will not have an overriding effect.

Illustration

A mortgages an immovable property to B. As discussed above mortgage allows the transfer of few rights only. Thus, the remaining rights are still with A. Now A sells, the same property he mortgaged to B, to C. Thus, all the rights are transferred to C and he will redeem the property.

However, if A mortgages the property to C then he will only transfer the remaining rights and not the rights already transferred to B.

Section 48(1) also lays down that if there are successive transfers of the same property, the latter is transferred is subject to the prior transfer.

Illustration

A leases his house to B on a yearly basis. Later on, he mortgages the same property to B (his tenant). After that he creates another mortgage in favour of C. Further on he goes on to make a gift deed of the same property to D.

Implication of right over such successive transfer

The gift created is subject to the mortgages. When transfers are of an inconsistent type, then no question of priority arises but where the transfers are of one type then which one would precede the other becomes a question of great concern. Section 48(1) remedies such situations.  The latter transfer is subject to the previous transfer.

Section 48 applies in the absence of any special contract binding on the transferor and the earlier transferee.[2]

Section 48(2)

When transfers are executed on the same date then also the one executed first, to be proven by evidence, will be given priority.

However, such a situation is subject to many exceptions created by a few judicial pronouncements.

1. According to Section 50 of the Registration, Act priority is given to the subsequently registered deed over a prior unregistered deed. This exception has to pay heed to the Doctrine of Notice.[3]
2. Section 78 of TPA, 1882 itself lays down an exception. There can be cases where a deed of transfer is executed through gross negligence, fraud, or misrepresentation of the previous transferee. It is interesting to note that in such cases the priority of the previous transferee will be postponed.
3. The Right of a co-sharer for oweltry money on the partition is entitled to be preceded over previous transfer like mortgage, of property which is allotted to the co-sharer who is supposed to carry the liability to pay oweltry.

The equality of partition or oweltry of a property owned by a joint family, it is impossible to distribute properties by metes and bounds. This is so because there arises a necessity for the allocation of properties of unequal volumes to the members of the joint family.

• In Herumbo Nath banerjee v. Satish Chandra[4], it was held that in a suit for partition, the member who receives a part of a property (by Government orders) the Mortgages whole or part of the property/estate, in such a mortgage the mortgagee would be given priority over execution creditor. Execution creditor is one who attached the property after the commencement of the suit of partition.
• Under Section 98 of the Bengal Tenancy Act, a prior mortgage by a co-owner of a share was to be subjected to prior charge by a manager of the whole estate.

Judicial Pronouncements

In Duraiswami Reddi v. Angappa Reddi[5] held that even if the documents of a prior transferor are registered later on, he will still be given priority over subsequent transferee. This also holds true even when the latter transferee didn’t have any knowledge about the previous transaction.

The Madras High Court has thoroughly followed this decision in cases like Ramaswami Pillai v. Ramaswami Naicker[6]. The AP High Court also followed the same principle in Jagannatha Rao v. Raghavarao.[7]

In Chouth Mal v. Hira Lal[8], an agreement of Sale for the sale of land was executed sometime in January of 1932. Subsequently, the sale-deed in favour of the defendant was executed in May 1932. However, the previous owner executed a usufructuary mortgage of the same property in the favour of the plaintiff sometime in February 1932. The court held that the usufructuary mortgage will be given priority over the Sale deed.

In Punjab & Sind Bank v. MMTC Ltd[9], a mortgager obtained a loan by way of deposit of title deeds of his property as well as credit facilities from the bank. A recovery certificate in favour of the bank under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, can’t have any effect upon a prior charge of a mortgagee owing to the absence of a non-obstante clause in the Act.

In SFL Industries Ltd v. Reliance Capital Ltd[10], Section 429A in the Companies Act, 1956 didn’t specifically provide for rights of priorities over mortgaged assets. In such cases Section, 48 of TPA becomes applicable. Accordingly, the claim of the first charge holder would prevail over the claim of the second charge holder.

In ICICI Bank Ltd v. SIDCO Leather Ltd[11], the Apex Court held that since under Section 529A of the Companies Act, 1956 doesn’t pronounce the effect of provisions of Section 48 of the TPA, 1882; it would not be applicable in relation to the affairs of a company. The claim of the first charge-holder prevails over the second.

Lastly in Hafiz Md. Anwar v. Jamuna Prasad Singh[12], it was held that Section 48 of TPA, 1882; if the same property has been transferred at different times then the subsequent transfer shall not confer any right or title or interest on any basis of the subsequent transfer over the prior transfer.

Conclusion

This doctrine is pretty practical in application. The judicial precedents also hold good law. This has expanded in complexity with the increase in a number of scenarios and still holds good. The exceptions given under Section 48 are also clear and mostly with regard to other statutes. It is interesting to note that even after so many statutes of property, nearly 18, TPA was still required to sort of bind the overlapping impact of these statutes or even the conflicting impact of these statutes through an exception to rules and doctrines.

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[1] Nandkishore v. Harjarilal, AIR 2009 (NOC) 2445 (MP)

[2] B Sivaraman v. S. Ramalingam, AIR 2007 Mad 221

[3] Hathi Singh v. Kuvarji, (1886) 10 Bom 105

[4] Herumbo Nath banerjee v. Satish Chandra, (1906) 33 Cal 1175

[5] Duraiswami Reddi v. Angappa Reddi, (1945) I M.L.J 425

[6] Ramaswami Pillai v. Ramaswami Naicker, AIR 1960 Mad 396.

[7] Jagannatha Rao v. Raghavarao, (1963) Andh. W.R. 267

[8] Chouth Mal v. Hira Lal, AIR 1950 Ajmer 50

[9] Punjab & Sind Bank v. MMTC Ltd, AIR 2016 Del 15

[10] SFL Industries Ltd v. Reliance Capital Ltd, AIR 2015 P&H 116

[11] ICICI Bank Ltd v. SIDCO Leather Ltd, AIR 2006 SC 2088

[12] Hafiz Md. Anwar v. Jamuna Prasad Singh, AIR 1958 Pat. 193