CHAPTER 1

Immovable PropertyAn Introduction to a New Perspective

SYNOPSIS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Introduction Scope Immovable property and transfer of immovable property Persons competent to transfer Verification of documents of title Operation of transfer Conditional transfer Transfer where third person is entitled to maintenance Transfer by ostensible owner Transfer by unauthorized persons who subsequently acquire interest in the property transferred Transfer by one co-owner Extent of interest of transferee in case of joint transferee Extent of share in consideration in case of joint transferor Priority of rights created by transfer Doctrine of lis pendens Fraudulent transfer Registration Procedure Effect of non-registration of documents Transfer of immovable property and FEMA Definition

INTRODUCTION The expression Real estate has generated immense interest in recent times. It has attracted investments not just from within India but also from overseas. Unfortunately, the transactions in real estate industry are not very organised; the intending transferor and the

A Handbook on Real Estate Investment: A Legal Perspective

transferee do not have much information about the legality of transaction and rely mostly on half-baked information and practices employed in the trade. Real estate broadly means lands and buildings. Lands may be earmarked for agricultural, industrial, residential or other purposes. Buildings may mean the structure erected on lands. Since it is not possible for everyone to own a piece of land and build thereupon, a culture of apartment/flat has come to be accepted in India in the residential sector. It is not permissible to use a piece of land for the purpose other than for which it has been earmarked. This book is an attempt to answer all possible questions which a person must know before he enters into any transaction of real estate. This book covers all legal requirements needed to transact in real estate and their effects. The book is divided into chapters based on transactions by which these are known, namely sale, lease, etc. It does not go deep into the understanding of law but provides the basic information required. The fundamental information needed for anyone interested in transactions in real estate/immovable property in India is to know the law governing transfer/transaction of real estate in the country. The Transfer of immovable property in India is governed by the Transfer of Property Act, 1882, (hereinafter referred to as the Act). The Act has not seen any major amendment in the last 125 years despite the fact that the economic vision of India has changed drastically, particularly during the last sixteen years. Transactions in real estate are still governed by the old and outdated Act. The liberalization of Indian economy has permitted foreign investments in real estate and has allowed a new class of people, who are keen to and are looking forward to such investment, to invest money in real estate in India. Foreign exchange transactions in India are governed by the Foreign Exchange Management Act, 1999, (FEMA). The law relating to transfer of or transaction in immovable property in India involving foreign exchange is the Foreign Exchange Management (Acquisition and Transfer of Immovable Property) Regulations, 2000, [hereinafter referred to as FEM (A&TI) Regulations]. SCOPE The Act prescribes the following modes of transaction/transfer of immovable property:

Sale, Agreement to sell, Gift, Lease,

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Immovable PropertyAn Introduction to a New Perspective

Mortgage, and Exchange.

Another mode of transfer which has been discussed in this book is Inheritance, which has not been provided in the Act. Since India does not have a common civil code, persons having different religious beliefs have different laws for inheritance. Persons born out of interfaith marriages would have different laws of succession from those by which their parents are governed. The modes mentioned above have been commented upon in detail in subsequent chapters. Peculiarities of each mode of transaction have been provided in the respective chapter. However, certain provisions are universally applicable to all kinds of transfers of immovable property. This chapter is dedicated to such provisions of the Act and other statutes which run commonly through all modes of transfer, and these have been stated here in order to avoid repetition in subsequent chapters. Basics of FEMA have also been explained in the latter part of this chapter. This will allow a better understanding of transactions or transfers of immovable property in subsequent chapters. Leave and license is adopted in some States as a mode of transfer. It is taken as an alternative to lease, particularly in states where the rent laws are stringent and favors the tenant. The concept of leave and license has not been discussed in this book for the reason that the book largely discusses the modes of transfer as envisaged under the Transfer of Property Act, 1882. IMMOVABLE PROPERTY AND TRANSFER OF IMMOVABLE PROPERTY The expression immovable property has been defined in Section 31 of the Transfer of Property Act, 1882, and Section 3(26)2 of the General Clauses Act, 1897. An immovable property shall include land, benefits to arise out of land, and things attached to earth, or permanently fastened to anything attached to the earth. A simplified version would imply that immovable property would mean land and building. The expression transfer in regard to immovable property would include all modes of transaction mentioned under the heading Scope earlier.
1 Section 3, Transfer of Property Act, 1882: Interpretation clause. In this Act, unless there is something repugnant in the subject or context,immovable property does not include standing timber, growing crops or grass. 2 Section 3(26), General Clauses Act, 1897: immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.

A Handbook on Real Estate Investment: A Legal Perspective

The expression Transfer of property3 is an act by which a living person conveys immovable property, at present or in future, to other living persons. Such an act of conveying the property is called transfer of property. The expression living person would mean and include the following:

An individual, A Hindu undivided family, A company, A firm, An association of persons or a body of individuals, whether incorporated or not, and Every artificial juridical person, not falling within any of the preceding sub-clauses. By oral transfer, and By an instrument in writing.

An immovable property may be transferred in the following two ways:

Transfer by an instrument in writing is the rule, oral transfers of immovable property, however, is limited to transactions whose value is less than Rs 100.00. All instruments in writing for transfer of immovable property require registration of the document. The registration is required to create a public record of all transactions of transfer of immovable property. The record of registration is available for inspection. A person intending to acquire an immovable property is expected to check the antecedents of the property before signing the document of transfer. PERSONS COMPETENT TO TRANSFER Persons competent to transfer an immovable property should be:
3

competent to contract,4 the owner of the immovable property, or

Section 5, Transfer of Property Act, 1882: Transfer of property defined. In the following sections transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and to transfer property is to perform such act. In this section living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.

Section 11, Indian Contract Act, 1872: Who are competent to contract. Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.

Immovable PropertyAn Introduction to a New Perspective

authorized by the owner of the immovable property to transfer the property.

The owner of an immovable property has unrestricted right to transfer the property. However, the power of the person seeking to transfer the property by virtue of an authority is subject to the extent and manner allowed and prescribed by the authority given by the owner. The authorized person cannot transfer beyond his permitted right and authority. The right may be reserved with regard to portion, price, area, etc. Any transfer beyond the prescribed limits would not create any right in favour of the transferee. VERIFICATION OF DOCUMENTS OF TITLE It is advisable that transferee should get the title of the person claiming to be the owner of the property duly verified before entering into any transaction of the transfer of property. The office of SubRegistrar of District where the land is situated would have all the records of previous transfers of the land which is sought to be transferred. OPERATION OF TRANSFER As a rule an immovable property is transferred in favour of the transferee immediately on the execution of the transaction. All the interest which vested with the transferor on the date of the execution of transaction stand transferred in favour of the transferee, along with legal incidents thereof, forthwith. The operation of the transfer may not however be immediate, if the parties demonstrated a different intention. The intention may either be express or implied. Express intention may be evident by recording in the document of transfer and implied intention is determinable by the conduct of the parties. Where a different intention is evident, the interest in the immovable property shall get transferred on the stipulated date or on the happening of the stipulated event and not immediately. The legal incidents which are transferred along with transfer of an immovable property are stated in Section 85 of the Act. It would include in case of land, the easements annexed thereto, the rents and profits thereof accruing after the transfer, and all things attached to earth. The legal incidents in case of a house are the easement thereto,
5 Section 8, Transfer of Property Act, 1882: Operation of transfer. Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property and in the legal incidents thereof. continued on the next page

A Handbook on Real Estate Investment: A Legal Perspective

the rent thereof after the transfer, locks, keys, bars, doors, windows, and all other things provided for permanent use of the house. CONDITIONAL TRANSFER The transfer of an immovable property by the transferor to the transferee has to be absolute.6 It cannot be bound down by any condition or limitation. Any transfer which is subject to any condition or limitation is void. The transferor is barred from making the following conditions:

Restriction or limitation in parting with or disposing of interest in an immovable property. Restriction on enjoyment of the interest in any particular manner.7
Such incidents include, when the property is land, the easements annexed thereto, the rents and profits thereof accruing after the transfer, and all things attached to the earth; and, where the property is machinery attached to the earth, the movable parts thereof; and, where the property is a house, the easements annexed thereto, the rent thereof accruing after the transfer, and the locks, keys, bars, doors, windows, and all other things provided for permanent use therewith; and, where the property is a debt or other actionable claim, the securities therefor (except where they are also for other debts or claims not transferred to the transferee), but not arrears of interest accrued before the transfer; and, where the property is money or other property yielding income, the interest or income thereof accruing after the transfer takes effect.

Section 10, Transfer of Property Act, 1882: Condition restraining alienation. Where property is transferred subject to a condition or limitation absolutely restraining the transferee or any person claiming under him from parting with or disposing of his interest in the property, the condition or limitation is void, except in the case of a lease where the condition is for the benefit of the lessor or those claiming under him: PROVIDED that property may be transferred to or for the benefit of a woman (not being a Hindu, Muhammadan or Buddhist), so that she shall not have power during her marriage to transfer or charge the same or her beneficial interest therein.

Section 11, Transfer of Property Act, 1882: Restriction repugnant to interest created. Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction. Where any such direction has been made in respect of one piece of immovable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in this section shall be deemed to affect any right which the transferor may have to enforce such direction or any remedy which he may have in respect of a breach thereof.

Immovable PropertyAn Introduction to a New Perspective

However, this rule is subject to two exceptions. The first exception is in the case of transfer of an immovable property by way of a lease. It is permissible in law to have conditions in the lease which are for the benefit of the lessor or persons claiming under him. The most usually applied conditions in lease are those which restrain the lessee from subletting, assigning or parting with possession in favour of any other persons. The other permissible kind of condition is where an immovable property is transferred to or for the benefit of a woman. In such a case, a condition may be imposed on the transferee woman that she shall not have the power to transfer or charge the said immovable property, during the subsistence of her marriage. This exception, however, is not applicable to Hindu, Mohammedan or Buddhist women, which would mean that no such condition restricting their rights to transfer the property may be imposed upon them. Any such condition, if imposed, would entitle the transferee to ignore such a condition. The transferee may enjoy and apply the immovable property in a manner as if no such condition existed. TRANSFER WHERE THIRD PERSON IS ENTITLED TO MAINTENANCE Where a person other than a transferor or the transferee has rights over the profits of an immovable property for the purpose of:

Receiving maintenance, or Receiving marriage expenses,

such third person has the right to enforce the same against the person who holds the property and the person who is the transferee of the said immovable property.8 Where however, the transfer is for consideration/value, to enforce this right against the transferee it is necessary that the transferee was conscious of the right of the third party over the said immovable property. Transaction of sale, mortgage, exchange and lease are transfer for consideration. In case of gratuitous transfer, like in the transaction of gift, the transferee would be liable to the third parties for their rights arising out of profits of the immovable property, irrespective of whether the transferee had the notice of rights of the third party or not. The plea of non-notice of the fact of right of third parties would not be available to gratuitous transferee of such immovable property.
8 Section 39, Transfer of Property Act, 1882: Transfer where third person is entitled to maintenance. Where a third person has a right to receive maintenance, or a provision for advancement or marriage, from the profits of immovable property, and such property is transferred, the right may be enforced against the transferee, if he has notice thereof or if the transfer is gratuitous; but not against a transferee for consideration and without notice of the right, nor against such property in his hands.

A Handbook on Real Estate Investment: A Legal Perspective

TRANSFER BY OSTENSIBLE OWNER Section 79 of the Act, provides for two classes of people who are competent to transfer, namely the owner himself or any person authorized by the owner to dispose of the property. Between the two classes of people emerges another class of people who have been addressed as ostensible owner10 in the Act. An ostensible owner is an unauthorized person to transfer the property. However, the transfer made by him would be a valid transfer, if the following conditions are fulfilled: a. The person interested in the immovable property has given express or implied consent to the ostensible owner to transfer the immovable property, b. The transfer is for consideration, c. The transferee has acted in good faith, and d. The transferee had taken reasonable care to determine that the transferor/ostensible owner had the power to make the transfer. The rule of valid transfer by ostensible owner is an exception to the general rule that a person cannot confer a better title that what he has. Being an exception the heavy burden is on the transferee to show that the transferor was the ostensible owner of the property and that the transferee taken had reasonable care to ascertain that the transferor had power to transfer and acted in good faith.11 The expression person interested in the immovable property is a wide expression and would include within its ambit any person who has interest in the property and is not limited only to the owners of the property.
9 Section 7, Transfer of Property Act, 1882: Persons competent to transfer. Every person competent to contract and entitled to transferable property, or authorised to dispose of transferable property not his own, is competent to transfer such property either wholly or in part, and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force. 10 Section 41, Transfer of Property Act, 1882: Transfer by ostensible owner. Where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorised to make it: PROVIDED that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith. 11 Gurbaksh Singh v. Nikka Singh MANU/SC/0331/1962: AIR 1963 SC 1917: [1963] Supp 1 SCR 55; Crystal Developers v. Smt Asha Lata Ghosh MANU/ SC/0859/2004: AIR 2004 SC 4980: (2005) 9 SCC 375: 2005 (1) ALD 1 (SC): (2005) 1 CALLT 45 (SC): 2004 (5) CTC 121: JT 2004 (9) SC 64: (2004) 4 MLJ 172 (SC): 2004 (8) SCALE 390.

Immovable PropertyAn Introduction to a New Perspective

TRANSFER BY UNAUTHORIZED PERSONS, WHO SUBSEQUENTLY ACQUIRE INTEREST IN THE PROPERTY TRANSFERRED In a situation where an unauthorized person, who fraudulently or erroneously transferred a property for a consideration, acquires interest in the said immovable property at any time during which the contract of transfer subsists, the transferee, at his option, may acquire the interest which the unauthorized transferor acquired at any time during which the contract of transfer subsists. The option to insist on the operation of interest lies only with the transferee; he may continue to treat the contract as void, being without authority.12 TRANSFER BY ONE CO-OWNER Where an immovable property has more than one owner, each coowner has a right to transfer his respective share in the property or any interest therein. A co-owner is not required to wait for or seek the permission of other co-owners to transfer the property. The undivided interest of the co-owner upon transfer shall vest with the transferee. The transferee would step into the shoes of the transferor/ co-owner and would acquire all interest or share of the transferor in the said immovable property. In the event of transfer by a co-owner, the remaining co-owners would however have the preferential right to acquire the property over the third-party strangers. Where a co-owner bids the same price/ consideration as that of an intending transferee, the property shall have to be transferred in favour of the co-owner. The acquired right of the transferee would include joint possession or other common or part enjoyment of the transferred property. This right is however not applicable to a dwelling house belonging to an undivided family, unless the transferee is also a member of the undivided family.

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Section 43, Transfer of Property Act, 1882: Transfer by unauthorised person who subsequently acquires interest in property transferred. Where a person fraudulently or erroneously represents that he is authorised to transfer certain immovable property and professes to transfer such property for consideration, such transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists. Nothing in this section shall impair the right of transferees in good faith for consideration without notice of the existence of the said option.

A Handbook on Real Estate Investment: A Legal Perspective

EXTENT OF INTEREST OF TRANSFEREE IN CASE OF JOINT TRANSFEREE Where an immovable property has more than one owner, the respective share of co-owners would be determined by the source of consideration paid for the said immovable property. The default rule where the consideration for the immovable property is paid out of funds belonging to the co-owners in common is that the co-owners shall have their shares equivalent to their respective shares in the common fund. However, where there is no evidence to determine the extent of share of the co-owners in the common fund, it shall be presumed that co-owners had equal shares. It is only a presumption which is drawn; this presumption is rebuttable in law by bringing the evidence to the contrary. The default rule where the consideration for the immovable property is paid out of separate funds of each of the co-owners is that the extent of their share in the immovable property would be in proportion to their advancement of consideration for purchase of the immovable property. Where however, the co-owners have agreed to a determination of respective share by way of a contract to the contrary, the default rule stated in the Act13 would not be applicable. The co-owners would own the property in proportion to what was agreed between them. EXTENT OF SHARE IN CONSIDERATION IN CASE OF JOINT TRANSFEROR Where an immovable property has more than one owner, in the event of its transfer, the consideration for transfer would be shared by its joint owners; the ratio for sharing would be dependant upon the
13 Section 45, Transfer of Property Act, 1882: Joint transfer for consideration. Where immovable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property.

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Immovable PropertyAn Introduction to a New Perspective

extent of their respective share in the property. The default rule14 for sharing of consideration is that if the ownership is shared equally between the co-owners, their share in the consideration would be equal. Where, however, the share in the ownership is unequal, the share in the consideration would be in ratio of their share in the immovable property. Similar principles are applicable in case of transferors having distinct interest in the property, the default rule for share in the interest is provided in section 4615 of the Act. It needs to be reminded that the relevant provisions of the statute only mentions the default rule. The parties are free to agree to any rule contrary to the default rule. That is to say that it may be agreed between the parties that the person who holds only 10% share in the property is entitled to 100% of transfer consideration and such an agreement is perfectly valid in law. PRIORITY OF RIGHTS CREATED BY THE TRANSFER Where a person by way of two different transactions of the transfer, transfers an immovable property or his interest in the said immovable property to two or more different persons, in the absence of a contract to the contrary, the subsequent transfer would be subject to the rights previously created.16 It is, however, necessary that both the transfers should be such that they cannot all exist or be exercised to their full extent together. Illustratively where A inducts B as a tenant/ lessee in his property in the year 2005 and sells the same property to C in the year 2006, the rights of C in the property are subject to the rights of B as a lessee in the said immovable property.
14 Section 47, Transfer of Property Act, 1882: Transfer by co-owners of share in common property. Where several co-owners of immovable property transfer a share therein without specifying that the transfer is to take effect on any particular share or shares of the transferors, the transfer, as among such transferors, takes effect on such shares equally where the shares were equal, and, where they were unequal, proportionately to the extent of such shares. 15 Section 46, Transfer of Property Act, 1882: Transfer for consideration by persons having distinct interests. Where immovable property is transferred for consideration by persons having distinct interests therein, the transferors are, in the absence of a contract to the contrary, entitled to share in the consideration equally, where their interests in the property were of equal value, and, where such interests were of unequal value, proportionately to the value of their respective interests. 16 Section 48, Transfer of Property Act, 1882: Priority of rights created by transfer. Where a person purports to create by transfer at different times rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.

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DOCTRINE OF LIS PENDENS Doctrine of lis pendens is an important part of the litigation governing immovable property. According to the Act17 it is an expression of the principle that pending litigation nothing new should be introduced. It provides that pendente lite, neither party to the litigation, in which any right to immovable property is in question, can alienate or otherwise deal with such property so as to affect his appointment. This section is based on equity and good conscience and is intended to protect the parties to litigation against the alienations by their opponent during the pendency of the suit. In order to constitute lis pendens, the following elements must be present:18 1. There must be a suit or proceeding pending in a court of competent jurisdiction. 2. The suit or proceeding must not be collusive. 3. The litigation must be one in which right to immovable property is directly and specifically in question. 4. There must be a transfer of or otherwise dealing with the property in dispute by any party to the litigation. 5. Such transfer must affect the rights of the other party that may ultimately accrue under the terms of the decree or order. A suit is deemed to be pending from the date of presentation of the plaint or the institution of the proceedings in a court of competent jurisdiction. A suit is considered to be pending till the time the suit or proceedings have been disposed of by a final decree or order. The decree or order should either be completely satisfied or discharged or the order should have become unobtainable by reason of the expiration of any period of limitation prescribed by law.
17 Section 52, Transfer of Property Act, 1882: Transfer of property pending suit relating thereto. During the pendency in any court having authority [within the limits of India excluding the State of Jammu and Kashmir] Government or established beyond such limits] by the Central Government of any suit or proceedings which is not collusive and in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding 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 as it may impose. Explanation : For the purposes of this section, the pendency of a suit or proceeding shall be deemed to commence from the date of the presentation of the plaint or the institution of the proceeding in a court of competent jurisdiction, and to continue until the suit or proceeding has been disposed of by a final decree or order and complete satisfaction or discharge of such decree or order has been obtained, or has become unobtainable by reason of the expiration of any period of limitation prescribed for the execution thereof by any law for the time being in force. 18 Amit Kumar Shaw v. Farida Khatoon, MANU/SC/0284/2005: (2005) 11 SCC 403: AIR 2005 SC 2209: 2005 (4) ALD 98 (SC): 2005 (2) AWC 1348 (SC): 2005 (2) BLJR 1273: 2005 (5) BomCR 690: (SC Supp l) 2005 (3) CHN 83: 2005 (4) CTC 47: JT 2005 (5) SC 20: 2005 (2) KLT 806 (SC): 2005 (3) MhLJ 330: (2005) 4 MLJ 36 (SC): (2005) 141 PLR 201.

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Immovable PropertyAn Introduction to a New Perspective

FRAUDULENT TRANSFER A transfer which has been made with the intention to defeat or delay the creditors of the transferor or the subsequent transferee is defined as Fraudulent Transfer.19 Such a transfer is voidable at the option of a creditor whose interest has been delayed/defeated. A voidable transfer means that the persons mentioned above if they desire not to be bound by the transfer, can safely exit the transaction. The transfer made fraudently will not transfer the right, title and interest of the transferor in favour of the transferee. The transferor would continue to retain his interest in the property and a creditor may seek attachment of the same for realisation of his dues. However, the rights of the transferee who has acted in good faith and has paid consideration for the immovable property would be safe and not be impaired by the transferors act of fraud. The transferee can bear the benefits of proviso attached to the section only on proving his bona fide and non-complicity with the transferor. It is settled that a transfer of property made with a deliberate object of avoiding payment of just debts is not in itself a good ground of setting aside the transaction. The knowledge and intention of the transferee are the determining factors. If the transferee buys in good faith and for valid consideration the purchase cannot be set aside merely because the transferor sold the property to defeat or delay his creditors.20 This section, while safeguarding the rights of transferees in good faith and for consideration empowers the creditors to avoid any transfer of immovable property made by the debtor with intent to defeat or delay the creditors.21
19 Section 53, Transfer of Property Act, 1882: Fraudulent transfer. (1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration. Nothing in this sub-section shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors. (2) Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee. For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made. 20 21 Ibrahim v. Jivan Das, AIR 1924 Lah 707. Phoolan Devi v. Surendra Prakash, AIR 1983 All 440.

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Any person who challenges the validity of any transaction under Section 53 of the Act must prove two facts: 1. that the transaction or the transfer was made by the transferor, and 2. that the said document was executed with clear intention to defraud or delay the creditors. Section 53(2) provides that every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee. The reading of sub-section (2) demonstrates that mere existence of subsequent transfer for consideration shall not by itself be evidence that a previous transfer made without consideration was made with intent to defraud. This sub-section has been enacted for protection of subsequent purchasers as sub-section (1) protects the creditors. REGISTRATION PROCEDURE The object of enactment of the Registration Act, 1908 is to keep a record of the documents which transfer the right of one person in an immovable property in favour of another. The Act classifies the documents in two categories, the first is of the documents which require compulsory registration and the other is those documents registration of which is optional. Section 17 of the Registration Act deals with the documents which require compulsory registration. A sale deed, gift deed and exchange deed in respect of an immovable property, the value of which is above Rs. 100, requires compulsory registration. In the current times it is next to impossible to locate any immovable property, value of which is less than Rs. 100, thus it can be safely assumed that all sale deeds, gift deeds and exchange deeds need to be compulsorily registered. The lease deeds in respect of immovable properties where the term of the lease is year to year, or for any term exceeding one year or reserving a yearly rent requires compulsory registration. A lease for a term which is less than a year, the registration is optional. In other words a lease for a period of 11 months or less than 11 months does not require compulsory registration. A mortgage in respect of an immovable property if created by an instrument in writing, the value of which is above Rs. 100, would require compulsory registration. With the exception of mortgage by deposit of title deeds, all kinds of mortgage stated in section 58 of the Transfer of Property Act require compulsory registration. The instrument of Will is optionally registerable under Section 18 of the Registration Act, 1908. The sale deed, gift deed, exchange deed and mortgage deed, value of which is less than Rs. 100, is optionally registerable.
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Immovable PropertyAn Introduction to a New Perspective

The value of an instrument is what is recorded in the document as a consideration/price for which the property is transferred. The finer issues pertaining to registration of documents with regard to each kind of registration has been dealt with in detail in the respective transaction chapter in the later part of this book. EFFECT OF NON-REGISTRATION OF DOCUMENTS There are no consequences for non-registration of a document which does not require compulsory registration under Section 17 of the Registration Act. The consequences for non-registration of documents which are compulsorily registerable are provided in Section 49 of the Registration Act. The consequences are: a. The document will not affect any immovable property comprised therein; b. The document will not be received as evidence of any transaction affecting such property or conferring such power. The document may however be read in evidence for collateral transaction not required to be effected by registered instrument. TRANSFER OF IMMOVABLE PROPERTY AND FEMA Liberalization of Indian economy has permitted foreign investments in the immovable property in India. Foreign nationals, non-residents Indians (NRI) and persons of Indian origin (PIO) have been allowed to invest/acquire immovable properties in India. Since foreign exchange is involved in the transfer of immovable properties in India, appropriate rules have been framed in FEMA. The applicable rules for investments in immovable property in India are known as FEM (A&TI) Regulations, 2000. To attract FEMA in transfer of immovable properties either of the two fundamentals factors must be present namely (a), the transaction is in foreign exchange or/and, (b) foreign citizen is a party to the transaction. Where either of the fundamental factors is not involved FEMA would not ordinarily be attracted. Thus, where a foreign national wants to acquire an immovable property in India, in Indian currency, FEMA would be attracted. Similarly, where an Indian citizen wants to acquire immovable property in foreign exchange, FEMA would be attracted. However, where an Indian citizen wants to buy immovable property in Indian currency, FEMA would not be ordinarily attracted. The only exception to the above said rule is where an Indian citizen, who is not a person resident in India, wants to acquire
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A Handbook on Real Estate Investment: A Legal Perspective

agricultural properties/farm houses and plantation properties. FEMA would be attracted in such situations, irrespective of the fact, whether consideration for acquisition is made in Indian currency or foreign exchange. The regulations have been drafted in a manner that these aim at promoting investments in real estate in India, while protecting the basic structure of Indian economy from interference by foreign investors. Therefore, agricultural properties, farmhouses and plantation properties have been exempted from attracting foreign investments in India. In other words, the Indian government has barred foreign nationals, foreign companies, NRIs and PIOs from acquiring agricultural and plantation properties and farmhouses. Thus, only Indian citizens residing in India are permitted to acquire and transfer the above-mentioned classified properties in India. The restriction of citizenship of the person acquiring an immovable property is prescribed only in FEMA. The Transfer of Property Act does not put any such restriction and allows all living persons to acquire immovable property. If a restricted meaning is given to citizenship, it would mean only natural persons are allowed to acquire immovable properties in India, however, in my view this could not have been the intention of the legislature. A broad meaning has to be given to the expression citizen in FEM (A & TI) Regulations, 2000. In my view, besides natural persons who are citizens of India, artificial persons like firm, joint stock Company, association of persons, whose ownership entirely vests with Indian nationals would also be permitted to acquire agricultural properties/farm houses and plantation properties. Where, however, the ownership of the artificial persons vests partly or wholly with foreign citizens there is a restriction on purchase of agricultural properties in India. Residential and commercial properties other non-agricultural and non-plantation properties, and properties not classified as farmhouses can be acquired in India, as a rule, by anyone irrespective of the nationality and residential status of the transferor and the transferee. Certain restriction have, however, been placed on the nature of transactions through which any immovable property is sought to be acquired or transferred. The restrictions are based on two factors: nationality and residential status. Foreign direct investments are not available for development of integrated township under the automatic route to persons resident outside India. The investment may however be permitted after obtaining the requisites permissions from the Reserve Bank of India. The permitted investment is 100 per cent subject to the following guidelines: 1. Minimum area to be developed under each project shall be as under:
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Immovable PropertyAn Introduction to a New Perspective

2.

3.

4.

5.

In case of development of serviced housing plots10 hectares. b. In case of construction and development project5 hectares. c. In case of combination project, any one of the above two conditions. The investment shall be subject to the following conditions: a. Minimum capitalization of USD 10 million for wholly owned subsidiaries and USD 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the company. b. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the Foreign Exchange Promotion Board (FIPB). At least 50 per cent of the project must be developed within a period of five years from the date of obtaining the statutory clearances. The investor shall not be permitted to sell undeveloped plots. The project shall conform to the norms and standards as laid down in the applicable building control regulations, bye-laws, rules and other regulations of the State Government or the municipal or local body concerned. The investor shall be responsible for obtaining all necessary approvals including those for the building/layout plans, and for developing internal and peripheral areas and other infrastructure facilities, payment of development and other charges as prescribed under applicable rules/bye-laws/ regulations of the State Government or the municipal or local body concerned.

a.

In the housing and real estate business only non-resident Indians are allowed to invest. NRIs are allowed to invest up to 100 per cent in the following areas: 1. Development of serviced plots and construction of built-up residential premises. 2. Investment in real estate covering construction of residential and commercial premises including business centres and offices. 3. Development of township. 4. City and regional-level urban infrastructure facilities including roads and bridges. 5. Investments in manufacture of building materials. 6. Investment in participatory ventures in (1) to (3) above. 7. Investments in housing finance institutions, which are also open to FDI as an non-banking financial companies (NBFC).
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A Handbook on Real Estate Investment: A Legal Perspective

Funds generated by transactions of real estate may be remitted outside India subject to Foreign Exchange Management (Remittance of Assets) Regulations, 2000. The scope of the remittances of funds generated from different types of transfer transactions have been discussed in detail under the respective chapters. Different laws relating to transfer of immovable property in India involving foreign exchange has been dealt with in corresponding chapters. Certain expressions which used universally in all kinds of transactions are explained below. A list of important definitions relevant to transfer of immovable property is presented as an annexure at the end of the book. DEFINITIONS

Person: The expression Person has been defined in Section 2(u)22 of FEMA, and includes an individual, a HUF, a company, a firm, an association of person or body of individuals whether incorporated or not, every artificial juridical person and any agency, office or branch owned or controlled by such person. The transferor in case of inheritance has to be a natural person; however, the transferee could be any of the above-stated persons. Citizen of India: A person could be a citizen of India, if the person was born in India on or after 26 January, 1950. Citizenship could also be acquired by descent, by registration and naturalization. Foreign National: A foreign national is a person who is not citizen of India. Persons of Indian Origin: Another entity known as a person of Indian origin has been created by Regulation 2(c)23 of the of FEM (A&TI) Regulations, 2000. The expression person of Indian origin means an individual who fulfils the following requirements: a. Who at any point of time held an Indian passport; or
Section 2 (u), FEMA, 1999:- person includesan individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals whether incorporated or not, every artificial juridical person, not falling within any of the preceding subclauses, and any agency, office or branch owned or controlled by such person;

22

23

Section 2(c), FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2000:Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan or Sri Lanka, if continued on the next page

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Immovable PropertyAn Introduction to a New Perspective

b.

Who himself or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act.

The concept of PIO, thus, necessarily means a person who is not a citizen of India, but had earlier been a citizen of India himself or whose father or grandfather was a citizen of India. The citizens of Pakistan, Bangladesh, China, Sri Lanka, Afghanistan, Iran, Nepal or Bhutan, however, can never qualify to be PIO because of an express prohibition imposed upon them. Person resident of India: The expression person resident of India has been defined in section 2(v)24 of FEMA. It would mean the following persons: a. Individual, b. Person or body corporate registered or incorporated in India, c. Office, branch, agency in India, owned or controlled by a person resident outside India, and d. Office, branch, agency in India, owned or controlled by a person resident in India. It means in case of individuals a person who has been a resident in India for a period of 182 days during the course of the preceding financial year. A financial year starts from 1
(a) he at any time held Indian passport; or (b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955, (Act 57 of 1955).

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Section 2(v), FEMA:- a person resident in India means (i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include: (A) a person who has gone out of India or who stays outside India, in either case: (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come to or stays in India, in either case, otherwise than: (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India;

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A Handbook on Real Estate Investment: A Legal Perspective

April each year and ends of 31 March of the next year. A person to qualify to be a person resident of India has to be a resident in India during the preceding financial year. However, a person would not qualify to be a person resident in India, if during the preceding financial year he has gone out of India or stays outside India: a. for employment outside India, or b. carrying on business or vocation outside India, or c. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. Similarly, a person would not qualify to be a person resident in India, if during the preceding financial year he has come to or stays in India, for a purpose otherwise than a. for or on taking up employment in India, or b. for carrying on business or vocation in India, or c. for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period. Person resident outside India: Section 2(w)25 of FEMA defines the expression person resident outside India. It means a person who is not a resident in India. Real estate business: The expression real estate business means buying and selling of real estate or trading in transferable development rights (TDRs) but does not include development of townships, construction of residential/ commercial premises, roads or bridges. Remittances of Assets: The expression remittance of asset means remittance outside India of funds representing a deposit with a bank or a firm or a maturity proceeds of insurance policy, sale proceeds of shares, securities, immovable property or any other asset held in India in accordance with the provisions of the FEMA or rules or regulations made thereunder. Repatriation outside India: The expression repatriation outside India means the buying or drawing of foreign exchange from an authorized dealer in India and remitting it outside India through normal banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency.

25

Section 2(w) of FEMA, 1999:- person resident outside India means a person who is not resident in India.

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