This article was written by Mahak Kharb, a student of University of School of Law and Legal Studies, Guru Gobind Singh Indraprastha University as a guest post.
This article will first elucidate the concept of Involuntary Sales and how it is a different phenomenon from Involuntary Transfers. Thereafter, the most important types of Involuntary Sales have been discussed.ie. Foreclosure and Condemnation Sales. The benefits and adverse effects on either of the parties from such sales have also been highlighted. Lastly, certain suggestions have been given regarding the loopholes in this area.
Involuntary sale, in other words, is a forced sale. According to the Black’s Law Dictionary[i], forced sale means a sale made at the time and in the manner prescribed bylawin virtue of execution issued on a judgment already rendered by a court ofcompetent jurisdiction; a sale made under the process of the court, and in the modeprescribed by law.[ii] In more simpler words, Involuntary Sale is a sale executed by a decree passed by the court of law, in situations wherein the consensual element was lacking between the parties. Involuntary sale of property is considered a sale if legal title to the property is actually transferred and the transfer is recognized under the state law. Thus, Foreclosure sales, Condemnation sales, repossession of collateral by a creditor and transfer of security to a creditor in discharge of a non recourse debt are all considered sales, even though the taxpayer was not a willing seller.[iii]
The concept of Involuntary Sale must not be confused with Involuntary Transfer as the latter has a much wider ambit than the former. Involuntary transfer involves transfer of property from one party to another without one party’s consent. “Transfer”herein is a word of the widest import and includes every means by which the property may be passed from one person to another.[iv] While involuntary sale is narrowly fixated on the sale of property, involuntary transfers on the other hand may include various types of transfers like adverse possession or the transfers by operation of law like the transfer of property resulting out of divorce proceedings. At this point, it is pertinent to highlight that even though all involuntary sales might be involuntary transfers but all involuntary transfers are not involuntary sales. Therefore, involuntary sales are only one kind of involuntary transfer.
Voluntary and Involuntary, transfer must be in good faith and for adequate consideration and should not tend to defeat the provisions of the Act. The involuntary sales are thus required to pass the test of bona fide sales and adequate consideration.[v]
TYPES OF INVOLUNTARY SALES
The are numerous kinds of Involuntary Sales. Some important types of Involuntary Sales are listed below:
- Foreclosure Sales: Section 13(4)(a) of the Sarfaesi Act provides that in case the borrower fails to discharge his liability in full within aspecified period, the secured creditor may takepossession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale, thereby providing for foreclosure. Foreclosure is a simple process by way of which, the creditor receives the possession of the property of borrower along with the right of its transfer, incase the borrower defaults in the payment of debt. This is usually the property that had been kept as a security in the loan. These properties are usually sold by the way of auction sales or e-auctions.
- Condemnation Sales: According to Black’s Law Dictionary, Eminent Domain is defined as the power to take private property for public use by the State, municipalities and private persons or corporations authorised to exercise functions of public character. The constitution limits this power of taking for a public purpose and prohibits the exercise of the power of eminent domain without just compensation to the owners of the property which is taken. This process of exercising the power of eminent domain is commonly referred to as ‘condemnation’.[vi] Acquisition of the private property by the state under the English Law, therefore, connotes the concept of a purchase, voluntary or involuntary.[vii]The owner receives a condemnation award (money or property) in exchange for the property taken. Therefore, condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer.[viii]
BENEFITS OF THE SALE
Right to Mesne Profits: Section 2(12) of Civil Procedure Code provides for Mesne profits, whereby it defines themas the profit that has been accrued by a person by wrongful possession of a property and are recoverable by landlord. The Hon’ble High Court in Hardip Kaur Vs. Kailash[ix], held that though a purchaser of immovable property vide Agreement to Sell, Power of Attorney etc. may not be a classical owner as would be an owner under registered Sale Deedbut still he would have better rights/entitlement to possession than theperson who is in actual physical possession. This means that the purchaser of property in an involuntary sale would be entitled to Mesne Profits since he has the better title than the person occupying the property physically, but the same has to be assessed in the light of facts from case to case. For instance, in cases where a person has purchased a coparcener’s share in the joint property in an auction sale held by the court, he is not entitled to mesne profits from the date of his purchase, until the decree for partition is passed.[x] However, this is true when the family is undivided. In other cases, where coparceners are divided in status, though the property is not partitioned and distributed among them by metes & bounds, the purchaser can get a decree for mesne profits.
Exceptions to Saleable Property: Not all property of the Judgement Debtor is saleable, there are certain exemptions and exceptions to this property, that have been provided under the Code of Civil Procedure, 1908 in form of benefit. Section 60(1), CPC provides exceptions to the property that can be attached for sale in execution of decrees. These exceptions include partial exemption of agricultural produce from attachment. It also includes necessary wearing apparel, cooking vessels, bedding, tools of artisans, implements of husbandry, houses of agriculturalists, wages, salaries, pensions and gratuities, compulsory deposits, right to future maintenance, etc.[xi]
ADVERSE EFFECT ON ONE PARTY
The transaction of Involuntary sales usually involve a contested interest over the property that is why the court has to step in to execute the sales. If the will of the parties were coordinated, it would be a voluntary sale. Now, in such a scenario of conflicted interests, the Court has to pick one side and that causes adverse effects on the loosing party’s interests. For instance, the court attaches certain property owned by the Judgement Debtor and executes its sale under Order XXI Rule 64 of CPC, so that the proceeds from the sale can benefit the party entitled.i.e. creditor. Such transactions will cause disadvantage to the Judgement Debtor and would harm his interests since he loses the title over his property, that too without his will.
While the Transfer of Property Act (hereinafter TPA) provides for plenty of laws regulating Voluntary Sales, but there are not enough laws for involuntary sales. This creates lucid gaps in the statute for regulation of such transactions. On one hand, Section 65 of CPC mandates that where immovable property is sold in execution of a decree and such sale is absolute, the property will be vested in the purchaser. But the rights and liabilities of the Purchaser and Seller involved in such transactions remain unclear. This is because Section 2(d) of TPA on the other hand, invalidates the application of the Transfer of Property Act to all the transfers made by the operation of law, of course barring minimal exceptions, but just not enough. As a result, Section 55 of TPA would not apply to the involuntary sales decreed by the court and consequentially, the Rights and Liabilities of the Buyer and Seller noted under TPA cannot said to be applied to the parties involved in such transactions. There is a clear need to harmonise TPA with involuntary sales so as to ensure that all the aspects related to these sales are taken into account.
There are various remedies available to the judgement debtor in court sales. These might be in the form of filling an appeal asking for stay.[xii] This is just one among the plenty of grounds due to which Courtsales are unfortunately too often questioned and set aside in this country.[xiii] Therefore, there is a need to look into stricter enforcement of Involuntary Sales.
It is hereby concluded, that Involuntary Sales can be called a niche area in Property Law. These sales have to be looked at through the spectrum of multiple statutes like Code of Civil Procedure, Transfer of Property Act, Sarfaesi Act and even Rent Control Acts. These are normal sales which were effectuated by the Court and hence, had to be abided by the parties, regardless of their will. Therefore, Involuntary sales are perfectly valid form of sales and shall not be confused with Illegal or Void Transfers which involve sale through threat or coercion.
[i] BLACK’S LAW DICTIONARY, 509( 2nd Ed. 1910).
[ii] Sampson v. Williamson, 6 Tex. 110, 55 Am. Dec. 762.
[iii] CCH TAX LAW EDITORS, FEDERAL TAX COMPLIANCE MANUAL, 7803 (2nd ed. 2008).
[iv] Wilfred Pereira Ltd. vs Commissioner Of Income-Tax, 1964 53 ITR 747 Mad.
[v] Sanjay Kumar v. State of U.P, (1995) 6 SCC 99.
[vi] BLACK’S LAW DICTIONARY, 523( 6th Ed. 1990).
[vii] State of West Bengal v. Subodh Gopal Bose & Ors., AIR 1954 SC 92.
[viii]Sales and Other Dispositions of Assets, Internal Revenue Service, Publication 544 Cat. No. 15074K, 7(2018), https://www.irs.gov/pub/irs-pdf/p544.pdf.
[ix] 2012 SCC OnLine Del 2937 : (2012) 193 DLT 168.
[x] Sidheshwar Mukherjee v. Bhubneshwar Prasad Narainsingh, 1953 AIR 487; Thammana Nukiah Shetti vs Velapa Appalaraju And Ors., AIR 1975 AP 208.
[xi] Section 60(1), The Code of Civil Procedure, 1908.
[xii] Order XLI, Rules 5 and 6, Code of Civil Procedure, 1908.
[xiii] Vasudevan Moosad v. Ittirarichan Nair, I.L.R. 41 Mad. 532; s.c. 7 L.W. 547 (F.B.).