12 Jan 2011

Doctrine of 'Lis Pendens': The law understood

Property disputes go on for long. But what happens if during the pendency of a dispute the property is transferred? Would it imply that through this process one of the parties can actually subvert the outcome of the pending proceedings? The answer to this lies in the doctrine of lis pendens which applies to such cases. Codified as the law of the land in terms of Section 52 of the Transfer of Property Act, the law is that such "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" except as otherwise allowed by the Court deciding the dispute. 

The Supreme Court in its recent decision in T.G. Ashok Kumar v. Govindammal explained the concept in the following terms;
9. Section 52 dealing with lis pendens is relevant and it is extracted below :
“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 or established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right of 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.”  
x x x x x x
In Jayaram Mudaliar v. Ayyaswami (AIR 1973 SC 569) this court held that the purpose of Section 52 of the Act is not to defeat any just and equitable claim, but only to subject them to the authority of the court which is dealing with the property to which claims are put forward. This court in Hardev Singh v. Gurmail Singh (2007) 2 SCC 404 held that Section 52 of the Act does not declare a pendente lite transfer by a party to the suit as void or illegal, but only makes the pendente lite purchaser bound by the decision in the pending litigation.
10. The principle underlying Section 52 is clear. If during the pendency of any suit in a court of competent jurisdiction which is not collusive, in which any right of an immovable property is directly and specifically in question, such property cannot be transferred by any party to the suit so as to affect the rights of any other party to the suit under any decree that may be made in such suit. If ultimately the title of the pendente lite transferor is upheld in regard to the transferred property, the transferee’s title will not be affected. On the other hand, if the title of the pendente lite transferor is recognized or accepted only in regard to a part of the transferred property, then the transferee’s title will be saved only in regard to that extent and the transfer in regard to the remaining portion of the transferred property to which the transferor is found not entitled, will be invalid and the transferee will not get any right, title or interest in that portion. If the property transferred pendente lite, is allotted in entirely to some other party or parties or if the transferor is held to have no right or title in that property, the transferee will not have any title to the property. Where a co-owner alienates a property or a portion of a property representing to be the absolute owner, equities can no doubt be adjusted while making the division during the final decree proceedings, if feasible and practical (that is without causing loss or hardship or inconvenience to other parties) by allotting the property or portion of the property transferred pendente lite, to the share of the transferor, so that the bonafide transferee’s right and title are saved fully or partially.
The Court also gave its recommendations to the Law Commission of India and the Parliament recommending change in law in the following terms;
13. It is necessary to refer to the hardship, loss, anxiety and unnecessary litigation caused on account of absence of a mechanism for prospective purchasers to verify whether a property is subject to any pending suit or a decree or attachment. At present, a prospective purchaser can easily find out about any existing encumbrance over a property either by inspection of the Registration Registers or by securing a certificate relating to encumbrances (that is copies of entries in the Registration Registers) from the jurisdictional Sub-Registrar under Section 57 of the Registration Act, 1908. But a prospective purchaser has no way of ascertaining whether there is any suit or proceeding pending in respect of the property, if the person offering the property for sale does not disclose it or deliberately suppresses the information. As a result, after parting with the consideration (which is many a time the life time savings), the purchaser gets a shock of his life when he comes to know that the property purchased by him is subject to litigation, and that it may drag on for decades and ultimately deny him title to the property. The pendente lite purchaser will have to wait for the litigation to come to an end or he may have to take over the responsibility of conducting the litigation if the transferor loses interest after the sale. The purchaser may also face objections to his being impleaded as a party to the pending litigation on the ground that being a lis pendens purchaser, he is not a necessary party. All these inconveniences, risks, hardships and misery could be avoided and the property litigations could be reduced to a considerable extent, if there is some satisfactory and reliable method by which a prospective purchaser can ascertain whether any suit is pending (or whether the property is subject to any decree or attachment) before he decides to purchase the property.
14. It is of some interest that a solution has been found to this problem in the States of Maharashtra by an appropriate local amendment to section 52 of the Act, by Bombay Act 4 of 1939. Section 52, as applicable in the Maharashtra and Gujarat, reads thus (the amendment is shown in italics): 
“52. (1) During the pendency in any court having authority within the limits of India excluding the State of Jammu and Kashmir established beyond such limits by the Central Government, of any suit or proceeding which is not collusive and in which any right to immoveable property is directly and specifically in question, if a notice of the pendency of such suit or proceeding is registered under section 18 of the Indian Registration Act, 1908, the property after the notice is so registered 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.
(2) Every notice of pendency of a suit or proceeding referred to in sub-section (1) shall contain the following particulars, namely:-
(a) the name and address of the owner of immoveable property or other person whose right to the immoveable property in question;
(b) the description of the immoveable property the right to which is in question;
(c) the court in which the suit or proceeding is pending; 
(d) the nature and title of the suit or proceeding; and
(e) the date on which the suit or proceeding was instituted.
x x x x x x x x x x x x
We hope that the Law Commission and the Parliament considers such amendment or other suitable amendment to cover the existing void in title verification or due diligence procedures. Provision can also be made for compulsory registration of such notices in respect of decrees and in regard to attachments of immoveable properties.
15. We may also refer to another related area where registration should be made compulsory to reduce property litigation. At present in most of the states, agreements to sell are not compulsorily registrable as they do not involve transfer of any right, title or interest in an immoveable property. Unscrupulous property owners enter into agreements of sale and take huge earnest money deposits/advances, and then sell the property to others thereby plunging the original agreement holder and the subsequent purchaser into litigation. Registration of agreements of sale will reduce such litigation. It will also assist in putting an end to the prevalent practice of entering into agreements of sale showing the real consideration and then registering the sale deed for only a part of the real consideration. If all agreements of sale are compulsorily registered, that will go a long way to discourage generation and circulation of black money in real estate matters, as also undervaluation of documents for purposes of stamp duty. It will also discourage the growth of land mafia and muscleman who dominate the real estate scene in various parts of the country. Prevention of a malaise, is always better than allowing a malaise to develop and then trying to cure it. Be that as it may.

No comments: