PART I INTRODUCTION
Various Laws Involved in Real Estate TransactionsThe various
laws governing the real estate transactions have been abridged as
follows:I. The Indian Contract Act, 1872. II. The Transfer of
Property Act, 1882. III. The Indian Registration Act, 1908. IV. The
Specific Relief Act, 1963. V. The Urban Land (Ceiling &
regularization) Act, 1976. VI. The Land Acquisition Act, 1894. VII.
The Indian Evidence Act, 1872.VIII. The Indian Stamps Act, 1899.
IX. The Rent Control Act. X. The State Laws governing the real
estates. XI. The Consumer Protection Act, 1986. XII. The
Arbitration & Conciliation Act, 1996.XIII. Income Tax Act,
1961.XIV. The Wealth Tax Act, 1957XV. The Co-operative Societies
Act, 1912XVI. The Multi-state Co-operative Societies Act, 2002
I.The Indian Contract Act, 1872There is one basic difference
between the law of contracts and other laws. It does not specify
the number of rights and duties, which the law protects or
enforces. It rather consists of a number of limiting principles,
subject to which the parties may create the right and duties for
themselves, which the law will uphold. In a sense, the parties to a
contract make the law for themselves. So long as they do not
infringe upon legal provisions, they remain at liberty to make what
rules they like regarding the subject matter of their agreement,
and the law protects the parties in respect of their mutual
determinations.Section 1 of Contract Act provides that any usage or
custom or trade or any incident of contract is not affected as long
as it is not inconsistent with provisions of the Act. In other
words, provision of Contract Act will prevail over any usage or
custom or trade. However, any usage, custom or trade will be valid
as long as it is not inconsistent with provisions of Contract Act.
The Act extends to the whole of India except the State of Jammu and
Kashmir; and came into effect on 1 September 1872.a) Definition of
contractAccording to Section 2 (h), the term contract means an
agreement enforceable by law. Generally, the real estate
transaction begins with an agreement between the parties. The
legislation specifies when a party can be said to have the capacity
to contract. A contract pertaining to real estate can be entered
into, by an individual (who is not a minor or of unsound mind),
partners of a firm, a corporate body, a trust, a sole corporation,
the manager of an undivided family and a foreigner. All the
requirements of a valid contract, i.e., consideration, intention to
contract and validity under the law of the land must be
satisfied.Definition of consideration: When, at the desire of the
promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to
abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise [Section 2(d)].b) Steps
involved in contractThe steps involved in the contract are:1.
Proposal and its communication.2. Acceptance of proposal and its
communication. 3. Agreement by mutual promises. 4. Contract. 5.
Performance of Contract: All agreements are not contract. Only
those agreements which are enforceable by law are contracts.
Following are essential requirements of a valid contract.i. Offer
and its acceptance.ii. Free consent of both parties.iii. Mutual and
lawful consideration for agreement.iv. It should be enforceable by
law. Hence, intention should be to create legal relationship.
Agreements of social or domestic nature are not contracts.v.
Parties should be competent to contract.vi. Object should be
lawful.vii. Certainty and possibility of performance.viii. Contract
should not have been declared as void under Contract Act or any
other law.ix. Communication, acceptance and revocation of proposals
Communication of proposal/revocation/ acceptance are vital to
decide validity of a contract. A communication is complete only
when other party receives it.x. Acceptance must be absolute - In
order to convert a proposal into a promise, the acceptance must (1)
be absolute and unqualified; (2) be expressed in some usual and
reasonable manner, unless the proposal prescribed the manner in
which it is to be accepted. If the proposal prescribes a manner in
which it is to be accepted, and the acceptance is not made in such
a manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall
be accepted in the prescribed manner, and not otherwise; but if he
fails to do so, he accepts the acceptance [Section 7].xi.
Acceptance of offer is complete only when it is absolute and
unconditional. Conditional acceptance or qualified acceptance is no
acceptance. xii. Promises, express or implied. Insofar as the
proposal or acceptance of any promise is made in words, the promise
is said to be express. Insofar as such proposal or acceptance is
made otherwise than in words, the promise is said to be implied
[Section 9]. For example, if a person enters a bus, there is
implied promise that he will pay the bus fare.c) Types of
contractThere are five types of contract, they are:1. Void
contracts2. Voidable contracts3. Valid contracts4. Unenforceable
contracts5. Illegal/unlawful contracts1.Void contractsSection 2 (j)
of the Indian Contract Act, 1872 defines a void contract as under:A
contract which ceases to be enforceable by law becomes void, when
it ceases to be enforceable. It is clear from this definition that
a void contract is a contract which was valid originally, i.e., at
the time of its formation, but becomes void subsequently on account
of the happening of some subsequent event. In other words, it is a
contract which was valid originally, but becomes void (ceases to be
enforceable by law) subsequently. Thus a void contract is not void
ab initio. It becomes void subsequently, when it ceases to be
enforceable by law. A void contract is perfectly valid and binding
on the contracting parties until it becomes void, i.e., cases to be
enforceable by law. It is for this reason that void contracts are
known as ex post facto void contracts.Examples of void
contracts(i)Subsequent impossibilityAs per Section 56 of the Indian
Contract Act, 1872 a contract becomes void by supervening
impossibility i.e., by subsequent impossibility of performance.
Suppose X and Y contract to marry each other. After formation of
the contract, but before the time fixed for the marriage, Y becomes
mad. In this case, the contract becomes void because of
impossibility of performance i.e., impossibility of
marriage.(ii)Subsequent illegalityAs per Section 56 of the Indian
Contract Act, 1872 a contract becomes void by supervening
illegality i.e., subsequent illegality. Suppose X agrees to sell Y
1000 bottles of liquor on or before a specified date, but before
the delivery, the Government introduces prohibition of sale of
liquor. In this case, the contract becomes void due to subsequent
illegality of the business.(iii)Impossibility of contingent eventAs
per Section 32 of the Indian Contract Act, 1872, a contingent
contract to do or not to do something on the happening of an
uncertain future event becomes void, when that event becomes
impossible. Suppose, A agrees to deliver imported garments to D
when the ship carrying the garments arrives at Cochin port. But the
ship sinks on the way. In this case, the contract becomes void.2.
Voidable contractSection 2 (i) of the Indian Contract Act, 1872
defines voidable contract as under:An agreement which is
enforceable by law at the option of one or more of the parties
thereto, but not at the option of one or more of the parties
thereto, but not at the option of the other or others, is a
voidable contract. From this definition, it is clear that a
contract is voidable if it is enforceable by law at the option of
only one of the contracting parties, and not at the option of both
the contracting parties. In short, it is a contract which can be
enforced or which can be avoided at the option of one of the
contracting parties i.e., the aggrieved party.Examples of voidable
contracti)Normally, a contract becomes voidable when the essential
element of free consent is not present. Such a contract is voidable
at the option of the aggrieved party, i.e., the party whose consent
is so obtained. For instance, if A coerces B to enter into a
contract with him for the sale of Bs house at knife point. In this
case, B s consent is obtained by coercion. In such a case, B can
either enforce the contract or rescind the contract. A cannot
enforce it against B. ii)Section 53 of the Indian Contact Act says
when a contract contains reciprocal promises, and one party to the
contract prevents the other party from performing his promise, then
the contract becomes voidable at the option of the party so
prevented. Suppose X contracts with Y to repair Ys house for Rs.
5000. X is ready to repair. But Y does not permit X to repair. In
this case, the contract becomes voidable at the option of X and so,
it can be avoided by X.iii)Section 55 of the Act says when one
party to the contract promises to do a certain thing within a
definite or specified time, but fails to do so, then, the contract
becomes voidable at the option of the other party, if the intention
of the parties was that time should be an essential condition of
the contract. Suppose R contracts with S to whitewash Ss house for
Rs 1000 within a week, but R fails to do so within the prescribed
time. In this case, the contract becomes voidable at the option of
S.When does a voidable contract become a void contract?A voidable
contract becomes void when the party entitled to repudiate such a
contract exercises his option to repudiate the contract. Suppose A
forces B to sell his house to him for Rs 10,000 at knife point, in
this case, the contract is voidable and it can be repudiated or
avoided by B. If B decides to rescind or avoid the voidable
contract, the contract becomes void.Differences between void
contract and voidable contract1. A void contract is not enforceable
at law at the instance of either party. But a voidable contract is
enforceable at the option of the aggrieved party.2. A third party
gets no right to a thing transferred by a person claiming the same
under a void contract. On the other hand, a third party acquires
good title to a thing transferred by a person claiming the same
under a voidable contract provided the transfer takes place before
the contract is voided.3.Valid contractA valid contract is an
agreement enforceable by law. An agreement becomes enforceable by
law only when it satisfies all the essential elements of a contract
as contained in Section 10 of the Indian Contract Act. So, a valid
contract is an agreement which satisfies all the essentials of a
contract, as contained in Section 10 of the Indian Contract Act.
For example, if A offers to sell his house to B for Rs 10 lakhs and
B accepts the same, there is a valid contract. The legal rights
conferred and the legal obligations imposed by a valid contract are
enforceable by law against each other.4.Unenforceable contractsAn
unenforceable contract is a contract which is valid in itself, but
cannot be enforced in a court of law because of some technical
defect, say absence of writing, absence of registration, want of
requisite stamp, expiry of time, etc. ExampleAn oral arbitration
agreement is unenforceable because, as per the arbitration law, an
arbitration agreement is required to be in writing. Similarly, an
insufficiently stamped bill of exchange or promissory note cannot
be enforced in a court of law. 5.Illegal or unlawful
contractsSection 23 of the Indian Contract Act deals with such
contracts. An illegal or unlawful contract is one whose object or
consideration i. is forbidden by law orii. is of such a nature
that, if permitted, it would defeat the provisions of any law
oriii. is fraudulent oriv. involves or implies injury to the person
or property of another orv. is immoral orvi. is opposed to public
policy.ExamplesAn agreement to commit murder, assault or robbery,
etc.Illegal contracts are void ab initio. All illegal agreements
are void. But all void agreements are not illegal.Further, when the
main agreement is illegal, then the other incidental or collateral
to the main agreement are also void. Suppose A engages B to murder
C and borrows Rs 1 lakh from D to pay B. In this case, the main
agreement between A and B is illegal. As such, the agreement which
is collateral to the main agreement i.e., the loan agreement
between A and D is also illegal. This means D cannot recover the
loan from A through a court of law. However, if D is not aware of
the purpose of the loan and if it can be proved, then the agreement
is not tainted with illegality.d) Contract of AgencyAgency is a
special type of contract. The concept of agency was developed as
one man cannot possibly do every transaction himself. Hence, he
should have opportunity or facility to transact business through
others like an agent. The principles of contract of agency are: (a)
Excepting matters of a personal nature, what a person can do
himself, he can also do it through agent (e.g. a person cannot
marry through an agent, as it is a matter of personal nature) (b) A
person acting through an agent is acting himself, i.e. act of agent
is act of Principal. Since agency is a contract, all usual
requirements of a valid contract are applicable to agency contract
also, except to the extent excluded in the Act. One important
distinction is that as per Section 185, no consideration is
necessary to create an agency. Agent and principal defined: An
agent is a person employed to do any act for another or to
represent another in dealings with third persons. The person for
whom such act is done, or who is so represented, is called the
principal [Section 182].Who may employ agent? Any person who is of
the age of majority according to the law to which he is subject,
and who is of sound mind, may employ an agent [Section 183]. Thus,
any person competent to contract can appoint an agent.Who may be an
agent? As between the principal and third persons any person may
become an agent, but no person who is not of the age of majority
and of sound mind can become an agent, so as to be responsible to
his principal according to the provisions in that behalf herein
contained [Section 184]. The significance is that a Principal can
appoint a minor or person of unsound mind as agent. In such case,
the Principal will be responsible to third parties. However, the
agent, who is a minor or of unsound mind, cannot be responsible to
Principal. Thus, Principal will be liable to third parties for acts
done by Agent, but agent will not be responsible to Principal for
his (i.e. Agents) acts.Consideration not necessary: No
consideration is necessary to create an agency [Section 185]. Thus,
payment of agency commission is not essential to hold appointment
of Agent as valid.Authority of agent: An agent can act on behalf of
Principal and can bind the Principal. Agents duty to Principal: An
agent has following duties towards principal.i. Conducting
principals business as per his directions. ii. Carry out work with
normal skill and diligence. iii. Render proper accounts [Section
213]. iv. Agents duty to communicate with principal [Section 214].
v. Not to deal on his own account, in business of agency [Section
215].vi. Agents duty to pay sums received for principal [Section
218]. vii. Agents duty on termination of agency by principals death
or insanity [Section 209].Remuneration to Agent: Consideration is
not necessary for creation of agency. However, if there is an
agreement, an agent is entitled to get remuneration as per
contract.
Rights of Principali. Recover damages from agent if he
disregards directions of Principal. ii. Obtain accounts from Agent.
iii. Recover moneys collected by Agent on behalf of Principal. iv.
Obtain details of secret profit made by agent and recover it from
him. v. Forfeit remuneration of Agent if he misconducts the
business.Duties of Principali. Pay remuneration to agent as agreed.
ii. Indemnify agent for lawful acts done by him as agent. iii.
Indemnify Agent for all acts done by him in good faith. iv.
Indemnify agent if he suffers loss due to neglect or lack of skill
of Principal.Termination of Agency: An agency is terminated by the
principal revoking his authority; or by the agent renouncing the
business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of
unsound mind; or by the principal being adjudicated an insolvent
under the provisions of any Act for the time being in force for the
relief of insolvent debtors [Section 201]. In following cases, an
agency cannot be revoked.i. Agency coupled with interest (Section
202). ii. Agent has already exercised his authority (Section 203).
iii. Agent has incurred personal liability.e) Remedies for Breach
of ContractWhen a contract is broken, the injured party has one or
more of the following remedies:i. Rescission of Contract: When a
contract is broken by one party, the other party may sue to treat
the contract as rescinded and refuse further performance. ii. Suit
for compensations. iii. Suit for specific performance. iv. Suit for
injunction.
II.Transfer of Property Act, 1882This Act lays down the general
principles of realty, like part-performance and has provisions for
dealing with property through sale, exchange, mortgage, lease, lien
and gift. A person acquiring immovable property or any
share/interest in it is presumed to have notice of the title of any
other person who was in actual possession of such property. 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 manner prescribed by any
law for the time being in force. A transfer of property passes
forthwith to the transferee all the interest which the transferor
is then capable of passing in the property. A transfer of property
may be made without writing Transfer of propertyTransfer 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. Living person includes a company
or association or body of individuals, whether incorporated or not,
(Section 5).Property, which cannot be transferred(a)The chance of
an heir-apparent succeeding to an estate, the chance of a relation
obtaining a legacy on the death of a kinsman, or any other mere
possibility of a like nature, cannot be transferred.(b)A mere right
of re-entry for breach of a condition subsequent cannot be
transferred to anyone except the owner of the property affected
thereby.(c)An easement cannot be transferred apart from the
dominant heritage.(d)An interest in property restricted in its
enjoyment to the owner personally cannot be transferred by
him.(dd)A right to future maintenance, in whatsoever manner
arising, secured or determined, cannot be transferred.(e)A mere
right to sue cannot be transferred.(f)A public office cannot be
transferred, nor can the salary of a public officer, whether before
or after it has become payable.(g)Stipends allowed to military,
naval, air-force and civil pensioners of the government and
political pensions cannot be transferred.(h)Any transfer for an
unlawful object or for a unlawful consideration with in the meaning
of Section 23 of the Indian Contract Act, 1872 is illegal and hence
void.(i)A tenant having an non-transferable right of
occupancy.(j)An estate in respect of which default has been made in
paying revenue.(k)the lease of an estate under the management of a
Court of Wards, to assign his interest as such tenant, farmer or
lessee.Transfer of title of ownershipTransfer of property refers to
taking over of possession from one person to another person. The
Transfer of Property Act 1882 contains specific provisions
regarding what constitutes transfer and the conditions attached to
it. According to the Act, transfer of property means an act by
which a person conveys property to one or more persons, or himself
and one or more other persons. The act of transfer may be done in
present or for future. The person may include an individual,
company or association or body of individuals, and any kind of
property may be transferred.Every person, who is competent to
contract, is competent to transfer property, which can be
transferred in whole or in part. He should be entitled to the
transferable property, or authorised to dispose off transferable
property which is not his own. The right may be either absolute or
conditional, and the property may be movable or immovable, present
or future. Such a transfer can be made orally, unless a transfer in
writing is specifically required under any law.A transfer of
property passes forthwith to the transferee all the interest which
the transferor is then capable of passing in the property, unless a
different intention is expressed or implied.In case the property is
transferred subject to the condition which absolutely restrains the
transferee from parting with or disposing off his interest in the
property, the condition is void. The only exception is in the case
of a lease where the condition is for the benefit of the lessor or
those claiming under him. Generally, only the person having
interest in the property is authorised to transfer his interest in
the property and can pass on the proper title to any other
person.According to Section 6 of the Transfer of Property Act,
property of any kind may be transferred. The person insisting
non-transferability must prove the existence of some law or custom
which restricts the right of transfer. Unless there is some legal
restriction preventing the transfer, the owner of the property may
transfer it. However, in some cases there may be transfer of
property by unauthorized person who subsequently acquires interest
in such property.According to Section 43 of the Transfer of
Property Act 1882, in case a person either fraudulently or
erroneously represents that he is authorised to transfer certain
immovable property and does some acts to transfer such property for
consideration, then such a transfer will continue to operate in
future. It will operate on any interest which the transferor may
acquire in such property. This will be at the option of the
transferee and can be done during the time during which the
contract of transfer exists. As per this rule, the rights of bona
fide transferee, who has no notice of the earlier transfer or of
the option, are protected. This rule embodies a rule of estoppel,
i.e., a person who makes a representation cannot later on go
against it.The rights of the transferees will not be adversely
affected, provided they acted in good faith; the property was
acquired for consideration; and the transferees had acted without
notice of the defect in title of the transferor.It should be noted
that these conditions must be satisfied:There must be as
representation by the transferor that he has authority to transfer
the immovable property. The representation should be either
fraudulent or erroneous.The transferee must act on the
representation in good faith.The transfer should be done for a
consideration.The transferor should subsequently acquire some
interest in the property he had agreed to transfer.The transferee
may have the option to acquire the interest which the transferor
subsequently acquires. The exercise of option must be during the
period of continuation of the contract and not afterwards.When all
these conditions exist, the transferee becomes entitled to the
interest, which is subsequently acquired by the transferor. It is
to be noted that the transferee, acting upon the representation,
has no right against any subsequent bonafide transfer for
consideration.SaleSale is a transfer of ownership in exchange for a
price paid or promised or part-paid and part-promised (Section 54).
Transfer of tangible immovable assets of value of Rs 100 or above
or other intangible thing can be made only by registered instrument
and in case of tangible immovable property of less than Rs 100 may
be made either by registered instrument or by delivery of property
Rights and liabilities of buyer and seller of immovable property
(Section 55)a)Liabilities of selleri.In the absence of the contract
to the contrary the seller is bound:(a)to disclose to the buyer any
material defect in the property or in the sellers title thereto of
which the seller is, and the buyer is not, aware, and which the
buyer could not with ordinary care discover;(b)to produce to the
buyer on his request for examination all documents of title
relating to the property which are in the sellers possession or
power;(c)to answer to the best of his information all relevant
questions put to him by the buyer in respect to the property or the
title thereto;(d)on payment or tender of the amount due in respect
of the price, to execute a proper conveyance of the property when
the buyer tenders it to him for execution at a proper time and
place;(e)between the date of the contract of sale and the delivery
of the property, to take as much care of the property and all
documents of title relating thereto which are in his possession as
an owner of ordinary prudence would take of such property and
documents;(f)to give, on being so required, the buyer, or such
person as he directs, such possession of the property as its nature
admits;(g)to pay all public charges and rent accrued due in respect
of the property up to the date of the sale, the interest on all
encumbrances on such property due on such date, and, except where
the property is sold subject to encumbrances, to discharge all
encumbrances on the property then existing.ii.Where the whole of
the purchase-money has been paid to the seller, he is also bound to
deliver to the buyer all documents of title relating to the
property which are in the sellers possession or power:b)Rights of
sellerThe seller is entitled:i.to the rents and profits of the
property till the ownership thereof passes to the buyer;ii.where
the ownership of the property has passed to the buyer before
payment of the whole of the purchase-money, to a charge upon the
property in the hands of the buyer, any transferee without
consideration or any transferee with notice of the non-payment, for
the amount of the purchase-money, or any part thereof remaining
unpaid, and for interest on such amount or part from the date on
which possession has been delivered.c)Liabilities of buyerThe buyer
is bound:i.to disclose to the seller any fact as to the nature or
extent of the sellers interest in the property of which the buyer
is aware, but of which he has reason to believe that the seller is
not aware, and which materially increases the value of such
interest;ii.to pay or tender, at the time and place of completing
the sale, the purchase-money to the seller or such person as he
directs but where the property is sold free from encumbrances, the
buyer may retain out of the purchase-money the amount of any
encumbrances on the property existing at the date of the sale, and
shall pay the amount so retained to the persons entitled
thereto;iii.where the ownership of the property has passed to the
buyer, to bear any loss arising from the destruction, injury or
decrease in value of the property not caused by the
seller;ERE-6
iv.where the ownership of the property has passed to the buyer,
as between himself and the seller, to pay all public charges and
rent which may become payable in respect of the property, the
principal moneys due on any encumbrances subject to which the
property is sold, and the interest thereon afterwards accruing
d)Rights of buyerThe buyer is entitled:i.where the ownership of the
property has passed to him, to the benefit of any improvement in,
or increase in value of, the property, and to the rents and profits
thereof;ii.unless he has improperly declined to accept delivery of
the property, to a charge on the property, as against the seller
and all persons claiming under him, to the extent of the sellers
interest in the property, for the amount of any purchase-money
properly paid by the buyer in anticipation of the delivery and for
interest on such amount; and, when he properly declines to accept
the delivery, also for the earnest (if any) and for the costs (if
any) awarded to him of a suit to compel specific performance of the
contract or to obtain a decree for its rescission.e)Mortgage,
mortgagor and mortgageeA mortgage is the transfer of an interest in
specific immoveable property for the purpose of securing the
payment of money advanced or to be advanced by way of loan, an
existing or future debt, or the performance of an engagement that
may give rise to a pecuniary liability.The transferor is called a
mortgagor, the transferee a mortgagee; the principal money and
interest of which payment is secured for the time being are called
the mortgage-money, and the instrument (if any) by which the
transfer is effected is called a mortgage-deed (Section 58).Where
the principal money secured is Rs 100 or upwards, a mortgage can be
effected only by a registered instrument signed by the mortgagor
and attested by at least two witnesses.Rights of mortgagorAfter the
principal money has become due, the mortgagor has a right, on
payment of the mortgage-money, to require the mortgagee:1.to
deliver to the mortgagor the mortgage-deed and all documents
relating to the mortgaged property which are in the possession or
power of the mortgagee,2.where the mortgagee is in possession of
the mortgaged property, to deliver possession thereof to the
mortgagor, and3.either to re-transfer the mortgaged property to him
or to such third person as he may direct, or to execute and to have
registered an acknowledgement in writing that any right transferred
to the mortgagee has been extinguished:A mortgagor in possession of
the mortgaged property is not liable to the mortgagee for allowing
the property to deteriorate; but he must not commit any act which
is destructive or permanently injurious thereto, if the security is
insufficient or will be rendered insufficient by such act.Rights of
MortgageeMortgagee has, at any time after the mortgage- money has
become due to him, and before a redemption decree or the
mortgage-money has been paid or deposited a right to obtain from
the court a decree that the mortgagor shall be absolutely debarred
of his right to redeem the property, or a decree that the property
be sold.The mortgagee has a right to sue for the
mortgage-money:1.where the mortgagor binds himself to repay the
same;2.where, the mortgaged property is wholly or partially
destroyed3.where the mortgagee is deprived of the whole or part of
his security in consequence of the wrongful act or default of the
mortgagor.Liabilities of mortgageeWhen the mortgagee takes
possession of the mortgaged property, he must:1.manage the property
as if it were his own;2.collect the rents and profits thereof;3.pay
the government revenue, charges of a public nature and rent;4.make
necessary repairs of the property;5.must not commit any act which
is destructive or permanently injurious to the property;6.he must
keep clear, full and accurate accounts of all sums received and
spent by him as mortgagee.LeaseA lease of immovable property is a
transfer of a right to enjoy such property, made for a certain
time, express or implied, or in perpetuity, in consideration of a
price paid or promised, or of money, a share of crops, service or
any other thing of value, to be rendered periodically or on
specified occasions to the transferor by the transferee, who
accepts the transfer on such terms.The transferor is called the
lessor, the transferee is called the lessee, the price is called
the premium, and the money, share, service or other thing to be so
rendered is called the rent (Section 105).A lease of immovable
property for agricultural or manufacturing purposes shall be deemed
to be a lease from year to year, terminable, on the part of either
lessor or lessee, by six months notice and a lease of immovable
property for any other purpose shall be deemed to be a lease from
month to month, terminable, on the part of either lessor or lessee,
by fifteen days notice.A lease of immovable property from year to
year, or for any term exceeding one year or reserving a yearly
rent, can be made only by a registered instrument.All other leases
of immovable property may be made either by a registered instrument
or by oral agreement accompanied by delivery of possession.Rights
and liabilities of the lessor1.The lessor is bound to disclose to
the lessee any material defect in the property;2.The lessor is
bound on the lessees request to put him in possession of the
property;3.If the lessee pays the rent and performs the contracts
binding on the lessee, he may hold the property during the time
limited by the lease without interruption.Rights and liabilities of
the lessee1.Any material part of the property destroyed and
permanently unfit for the purposes for which it was let by fire,
tempest or flood, or violence of an army or of a mob, the lease
shall, at the option of the lessee, be void:2.If the lessor
neglects to make, within a reasonable time after notice, any
repairs which he is bound to make to the property, the lessee may
make the same himself, and deduct the expense of such repairs with
interest from the rent, or otherwise recover it from the
lessor;3.Bound to pay, the premium or rent to the lessor or his
agent in this behalf;4.May remove, at any time whilst he is in
possession of the property leased all things which he has attached
to the earth provided he leaves the property in the state in which
he received it;5.Must not, without the lessors consent, erect on
the property any permanent structure, except for agricultural
purposes;6.On the determination of the lease, the lessee is bound
to put the lessor into possession of the property.ExchangeWhen 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 (Section 118).If any
party to an exchange is by reason of any defect in the title of the
other party deprived of the thing received by him in exchange, then
such other party is liable to him for loss caused thereby or for
the return of the thing transferred still in the possession of such
other party from him without considerationThe rights and
liabilities are same as of seller and buyer.
GiftGift is the transfer of certain existing movable or
immovable property made voluntarily and without consideration, by
one person, called the donor, to another, called the donor, and
accepted by or on behalf of the donee (Section 112).Acceptance of
the gift must be made during the lifetime of the donor and while he
is still capable of giving.For making a gift of immovable property,
the transfer must be effected by a registered instrument signed by
or on behalf of the donor, and attested by at least two
witnesses.For making a gift of movable property, the transfer may
be effected either by a registered instrument signed as aforesaid
or by delivery.Where a gift consists of the donors whole property,
the donee is personally liable for all the debts due and
liabilities of the donor at the time of the gift to the extent of
the property comprised therein.ChargeWhere immovable property of
one person is by act of parties or operation of law made security
for the payment of money to another, and the transaction does not
amount to a mortgage, the latter person is said to have a charge on
the property and all the provisions contained in the Transfer of
Property Act which apply to a simple mortgage shall, so far as may
be applicable, apply to such charge. Thus charge can be contractual
or statutory.
III.The Registration Act, 1908The purpose of this Act is the
conservation of evidence, assurances, title, and publication of
documents and prevention of fraud. It details with the formalities
for registering an instrument. Immovable propertyImmovable property
includes land, buildings, hereditary allowances, rights to ways,
lights, ferries, fisheries or any other benefit to arise out of
land, and things attached to the earth or permanently fastened to
anything which is attached to the earth, but not standing timber,
growing crops nor grass (Sub-Section 6 of Section 2).Movable
propertyMovable property includes standing timber, growing crops
and grass, fruit upon and juice in trees, and property of every
other description, except immovable property (Sub Section 9 to
Section 2).Documents for which registration is
compulsorya.Instruments of gift of immovable property: b.Other
non-testamentary instruments which purport or operate to create,
declare, assign, limit or extinguish, whether in present or in
future, any right, title or interest, whether vested or contingent
to or in immovable property: c.Non-testamentary instruments which
acknowledge the receipt or payment of any consideration on account
of instruments in (2) above. d.Leases of immovable property from
year to year; or for any term exceeding one year, or reserving a
yearly rent. e.Non-testamentary instruments transferring or
assigning any decree or order of a court or any award when such
decree or order or award purports or operates to create, declare,
assign, limit or extinguish, whether in present or in future, any
right, title or interest, whether vested or contingent, of the
value of one hundred rupees and upwards, to or in immovable
property (Section 17).Documents for which registration is
optionalAny of the following documents may be registered under this
Act, namely:a.instruments (other than instruments of gift and
wills) which purport or operate to create, declare, assign, limit
or extinguish, whether in present or in future, any right, title or
interest, whether vested or contingent, of a value less than one
hundred rupees, to or in immovable property;b.instruments
acknowledging the receipt or payment of any consideration on
account of the creation, declaration, assignment, limitation or
extinction of any such right, title or interest;c.leases of
immovable property for any term not exceeding one year, and leases
exempted under Section 17;cc.instruments transferring or assigning
any decree or order of a court or any award when such decree or
order or award purports or operates to create, declare, assign,
limit or extinguish, whether in present or in future, any right,
title or interest, whether vested or contingent, of a value less
than one hundred rupees, to or in immovable property;]d.instruments
(other than wills) which purport or operate to create, declare,
assign, limit or extinguish any right, title or interest to or in
movable property;e.wills.Time for presenting documentsNo document
other than a will shall be accepted for registration unless
presented within four months from the date of its execution. A copy
of a decree or order may be presented within four months from the
date on which the decree or order was made or, where it is
appealable, within four months from the day on which it becomes
final (Section 23).Documents executed by several persons at
different timesWhere there are several persons executing a document
at different times, such document may be presented for registration
and re-registration within four months from the date of each
execution (Section 24).Provision where delay in presentation is
unavoidableIf, owing to urgent necessity or unavoidable accident,
any document executed, or copy of a decree or order made, in India
is not presented for registration till after the expiration of the
prescribed time, the Registrar, in cases where the delay in
presentation does not exceed four months, may direct that, on
payment of a fine not exceeding ten times the amount of the proper
registration-fee, such document shall be accepted for registration
(Section 25).Documents executed out of IndiaWhen a document
purporting to have been executed by all or any of the parties out
of India is not presented for registration till after the
expiration of the prescribed time, the registering officer, if
satisfied(a)that the instrument was so executed, and(b)that it has
been presented for registration within four months after its
arrival in India may, on payment of the proper registration fee,
accept such document for registration (Section 26).Sales, mortgages
(other than by way of deposit of title deeds) and exchanges of
immovable property are required to be registered by virtue of the
Transfer of Property Act. Evidently, therefore, all the above
documents have to be in writing. An unregistered document will not
effect the property comprised in it, nor be received as evidence of
any transaction affecting such property (except as evidence of a
contract in a suit for specific performance or as evidence of
part-performance under the Transfer of Property Act or as
collateral).
Who can present documents for registration?1.Person executing
the documents.2.Representative of such person authorized by power
of Attorney.3.Agent of such person authorized by power of
Attorney.When the Registrar can refuse to register the
document?1.The registrar can refuse to register the document on the
following grounds:2.If the document is in a language, which the
registering officer does not understand and which is not commonly
used in the district, unless it is accompanied by a true
translation into a language commonly used in the district and also
by true copy;3.If in the document interlineations, blank, erasure
or alteration appears unless the persons executing the document
attest with their signatures or initials such interlineations,
blank, erasure or alteration;4.If any person by whom the document
purports to be executed denies its execution;5.If any person
appears to the registering officer to be a minor, an idiot, or a
lunatic;6.If any person by whom the document purports to be
executed is deed and his representative or assignee denies its
execution;It is pertinent to mention that the Registrar can impound
the document, if it contains deficient stamp duty and send the same
to the collector for necessary action.IV.Special Relief Act,
1963This Act is only to enforce individual civil rights [Section
4]. A person dispossessed of immovable property without his consent
(other than in due course of law) can recover possession by a suit
filed within six months from the date of dispossession. In a suit
for specific performance of contract, the Court shall presume that
monetary compensation for its performance would not afford adequate
relief. The court could also grant a permanent/ mandatory
injunction preventing the breach of such contract and award
damages.Specific Relief Act is complimentary to the provisions of
Contract Act and Transfer of Property Act, as the Act applies both
to movable property and immovable property. The Act applies in
cases where Court can order specific performance of a contract or
act.Meaning of Specific performance Specific performance means
Court will ask the party to perform his part of agreement, instead
of asking him to pay damages to other party.Recovering possession
of immovable property1.A person who is entitled to possession of a
specific immovable property may recover it in the manner provided
in Code of Civil Procedure. (Section 5) 2.If any person is disposed
without his consent, of immovable property otherwise than by course
of law, he can recover possession, even if any other title is set
up in such suit. Such suit shall be brought within 6 months. No
suit can be filed against Government for recovery of possession
[Section 6]. Even an unlawful possession of immovable property can
be taken away only by lawful means and not forcefully.Specific
performance of contractSpecific performance of contract can be
ordered, at the discretion of Court, in the following cases
(a)Where there exists no standard for ascertaining damage caused by
the non-performance of act agreed to be done or (b)When the act
agreed to be done is such that compensation in money for
non-performance will not give sufficient relief [Section 10]. As
per explanation (ii) to section 10, breach of contract in respect
of movable property can be relieved (by paying damages) unless the
property is not an ordinary article of commerce or is of specific
value or interest to the tariff, or consists of goods which are not
easily available in the market. In other words, Court may order to
deliver specific article only if it is special or unique article,
not available in the market. In other cases, Court will order
damages but not order specific performance of contract. In case of
immovable property, normally, specific performance will be ordered,
as such property is usually unique. Section 12(1) states that Court
shall not order performance of part of contract, except in cases
specified in that section.Contracts which cannot be specifically
enforcedFollowing contracts cannot specifically enforced:1.Where
compensation is adequate relief.2.Contract runs into such minute or
numerous details or depends on personal qualifications of parties
or is such that Court cannot enforce specific performance of its
material terms.3.Contract which in its nature is
determinable.4.Contract, performance of which involves a continuous
duty, which Court cannot supervise [Section 14]. In other words, in
case of movable articles or contract of intricate nature, specific
performance will normally not be ordered by Court. Specific
performance of contract of personal nature cannot be
ordered.Discretionary powers of CourtJurisdiction of Court to
decree specific performance is discretionary. Court will not order
specific performance merely because it is lawful to do so [Section
20(1)]. Court will consider various aspects before issuing decree
for specific performance. Court can grant compensation in lieu of
even in addition to specific performance [Section 21].Other cases
when Court can order specific performance1.Order rectification of
instrument if it does not reflect real intention of parties. This
may happen through fraud or mutual mistake [Section 26] 2.Order
rescission of contract (Section 27) 3.Cancellation of instrument by
getting declared that it is void (Section 31)
V.Urban Land (Ceiling and Regulation) Act (ULCRA), 1976This
legislation fixed a ceiling on the vacant urban land that a person
in urban agglomerations can acquire and hold. A person is defined
to include an individual, a family, a firm, a company, or an
association or body of individuals, whether incorporated or not.
This ceiling limit ranges from 5002000 sq. m. Excess vacant land is
either to be surrendered to the competent authority appointed under
the Act for a small compensation, or to be developed by its holder
only for specific purposes. The Act provides for appropriate
documents to show that the provisions of this Act are not attracted
or should be produced to the Registering officer for registration
under the Registration Act.
The objective of acquiring the excess vacant land could not be
achieved because of intrinsic deficiencies in the legislation
itself. The provisions under Sections 19, 20 and 21 of the Act have
together proved counter-productive to the objectives of the
legislation. So far, only 19020 hectares could be taken possession
of by State Governments and Union Territories and the remaining
land was locked up in various litigations. This has only helped to
push up land prices to unconscionable levels and practically
brought the housing industry to a stand-still.This legislation was
repealed by the center in 1999. The Repeal Act, however, shall not
affect the vesting of the vacant land, which has already been taken
possession by the State Government or any person duly authorized by
the State Government in this regard under the provisions of ULCRA.
The repeal of the Act, it is believed, has eliminated that large
amount of litigation and released huge chunks of land into the
market.
VI.The Land Acquisition Act, 1894This Act authorizes governments
to acquire land for public purposes such as planned development,
provisions for town or rural planning, provision for residential
purpose to the poor or landless and for carrying out any education,
housing or health scheme of the Government, in its present form.
The Act hinders speedy acquisition of land at low prices, resulting
in cost overruns.Steps for Land AcquisitionBased on the Land
Acquisition Act 1894, the steps currently involved in land
acquisition are as under 1.A notification is published in official
gazette and in two daily newspapers whenever it appears to the
appropriate Government the land in any locality is needed for any
public purpose. Thereupon it shall be lawful for any officer
authorized by such Government to enter upon and survey and take
levels of any land in such locality, to dig or bore into the
sub-soil, to do all other acts necessary to ascertain whether the
land is adapted for such purpose, to set out the boundaries of the
land proposed to be taken and the intended line of the work (if
any) proposed to be made thereon, to mark such levels, boundaries
and line by placing marks and cutting trenches; 2.The officer so
authorized shall at the time of such entry pay for all necessary
damages.3.Declaration shall be made that land is required for
public purposed under the signature of a Secretary to such
Government. Every declaration shall be published in the Official
Gazette and in two daily newspapers circulating in the locality in
which the land is situated.4.After declaration, Collector to take
order for acquisition.5.The Collector shall thereupon cause the
land to be market out.6.The Collector shall then cause public
notice at convenient places on or near the land to be taken,
stating that the Government intends to take possession of the land,
and that claims to compensations for all interests in such land may
be made to him.7.The collector will make inquiry into measurements,
value, claims and awards.8.The Collector shall make an award within
a period of two years from the date of the publication of the
declaration and if no award is made within that period, the entire
proceeding for the acquisition of the land shall lapse.9.Award of
Collector when to be final.8.After making an award for possession
of the land, land shall vest absolutely in the Government, free
from all encumbrances.
75The Land Acquisition Act, 1894
VII.The Indian Evidence Act, 1872Evidence means and
includes:1.All statements which the Court permits or requires to be
made before it by witnesses, in relation to matters of fact under
inquiry; such statements are called oral evidence.2.All documents
including electronic records produced for the inspection of the
Court; such documents are called documentary evidence.Section 110
deals with the burden of proof regarding title to property when the
competition is between a person in possession and the owner who is
out of possession. The rule laid down in Section 110 is that the
burden of proof that the person in possession is not the owner is
on the person who alleges that he is not the Owner.Ownership
chiefly imports the right to exclusive possession and enjoyment of
a thing. The owner in possession has the right to exclude all
others from possession and enjoyment of it and if he is wrongfully
deprived of what he owns, he has the right to recover possession of
it. Ownership also imports the power to dispose of property, to
sell, mortgage or donate. Right to possession and Right to dispose
of are therefore incidents of Ownership. Where there is ownership
there goes with it the right to possession and the right to
dispose. The law therefore holds that a person would not be in
possession of property unless he was the owner and places the
burden on his opponent.The principle of the Section does not apply
in the following cases:(i)Where the possession is merely judicial
as distinguished from actual present possession.(ii)Where
possession is obtained by fraud or force.VIII.The Indian Stamp Duty
Act, 1899Stamp means any mark, seal or endorsement by any agency or
person duly authorized by the state government and includes an
adhesive or impressed stamp for the purpose of duty chargeable
under the act.Duly stamped as applied to an instrument, means that
the instrument bears an adhesive or impressed stamp of not less
than the proper amount and that such stamp has been affixed or used
in accordance with law for time being in force in India.Stamp duty
is to be paid on every instrument executed in India, which is
mentioned in Schedule 1 of India Stamp Act, 1899. Schedule 1 covers
65 instruments. Some of the instruments relating to real estate on
which stamp duty is payable are Affidavit, Agreement to lease,
certificate of sale, conveyance in the nature of part performance
and Mortgage deed. No stamp duty is payable in respect of any
instrument executed by or on behalf or in favour of developer or
Unit or in connection with the carrying out of purposes of Special
Economic zone (SEZ).ERE-7
There is a direct link between Registration Act and Stamp Act.
The Payments of Stamp duty followed by the registration of the
agreement are two important acts when one enters into an agreement
with a developer/seller. Both, the developer/seller and the
purchaser need to be present at the Sub-Registrars office for
registering the agreement.a) Power of ParliamentParliament can make
law in respect of Stamp Duty. It can prescribe rates of stamp duty.
The stamp duty rates prescribed by Parliament in respect of bill of
exchange, cheques, transfer of shares etc. will prevail all over
India. However, other stamp duty rates prescribed by Parliament in
Indian Stamp Act, 1899 (e.g. stamp duty on agreements, affidavit,
articles of association of a company, partnership deed, lease deed,
mortgage, power of attorney, security bond etc.) are valid only for
Union territories. In case of States, the rates prescribed by
individual States will prevail in those States.b) Power of the
StateThe Stamp duty is a State subject and hence would vary from
state to state. The stamp duty in many states is paid as per the
true market value as assessed by the Stamp Office. When an
agreement is to be stamped, it needs to be unsigned and undated and
after the Stamp Office affixes stamps on the agreement, one may
execute the agreement. The Stamp Duty payable in various states
could be ascertained from the Stamp Duty Calculator c) Instruments
chargeable to stamp dutyInstrument includes every document by which
any right or liability, is, or purported to be created,
transferred, limited, extended, extinguished or recorded [Section
2(17) of Indian Stamp Act]. Any instrument mentioned in Schedule I
to Indian Stamp Act is chargeable to duty as prescribed in the
schedule [Section 3]. The list includes all usual instruments like
affidavit, lease, memorandum and articles of company, bill of
exchange, bond, mortgage, conveyance, receipt, debenture, share,
insurance policy, partnership deed, proxy, shares etc. Thus, if an
instrument is not listed in the schedule, no stamp duty is payable.
Instrument does not include ordinary letters. Similarly, an
unsigned draft of an agreement is not an instrument.d) Duty payable
when there are several instrumentsIn case of sale, mortgage or
settlement, if there are several instruments for one transaction,
stamp duty is payable only on one instrument. On other instruments,
nominal stamp duty of Re. 1 is payable [Section 4(1)]. If one
instrument relates to several distinct matters, stamp duty payable
is aggregate amount of stamp duties payable on separate instruments
[Section 5]. However, it may happen that one instrument covering
only one matter can come under more than one descriptions given in
Schedule to Stamp Act. In such case, highest rate specified among
the different heads will prevail [Section 6].e) Powers to reduce
stamp dutyGovernment can reduce or remit whole or part of duties
payable. Such reduction or remission can be in respect of whole or
part of territories and also can be for particular class of
persons. Government can also compound or consolidate duties in case
of issue of shares or debentures by companies [Section 9(1)].
Government means Central Government in respect of stamp duties on
bills of exchange, cheque, receipts etc. and State Government in
case of stamp duties on other documents [Section 9(2)].f) Mode of
payment of stamp dutyThe payment of stamp duty can be made by
adhesive stamps or impressed stamps. Instrument executed in India
must be stamped before or at the time of execution (Section 17).
Instrument executed out of India can be stamped within three months
after it is first received in India [Section 18(1)]. However, in
case of bill of exchange or promissory note made out of India, it
should be stamped by first holder in India before he presents for
payment or endorses or negotiates in India [Section 19]. g)
Valuation for stamp dutyIn some cases, stamp duty is payable on ad
valorem basis i.e. on basis of value of property etc. In such
cases, value is decided on prescribed basis.h) Adjudication as to
stamp duty payableAdjudication means determining the duty payable.
Normally, the person paying the duty himself may decide the stamp
duty payable and pay accordingly. However, in cases of complex
documents, the person paying the duty may not be sure of the stamp
duty payable. In such case, he can apply for opinion of Collector.
He has to apply with draft document and prescribed fees. Collector
will determine the stamp duty payable as per his judgment [Section
31(1)]. i) Meaning of the term duly stampedDuly stamped means that
the instrument bears an adhesive or impressed stamp not less than
proper amount and that such stamp has been affixed or used in
accordance with law in force in India [Section 2(11)]. In case of
adhesive stamps, the stamps have to be effectively cancelled so
that they cannot be used again. Similarly, impressed stamps have to
be written in such a way that it cannot be used for other
instrument and stamp appears on face of instrument. If stamp is not
so used, the instrument is treated as un-stamped. Similarly, when
stamp duty paid is not adequate, the document is treated as not
duly stamped.Instrument cannot be accepted as evidence if not duly
stamped An instrument not duly stamped cannot be accepted as
evidence by civil court, an arbitrator or any other authority
authorised to receive evidence. However, the document can be
accepted as evidence in criminal court. j) Case when short payment
is by mistakeIf non-payment or short payment of stamp duty is by
accident, mistake or urgent necessity, the person can himself
produce the document to Collector within one year. In such case,
Collector may receive the amount and endorse the document that
proper duty has been paid [Section 41].Stamp duty needs to be paid
on all documents which are registered and the rate varies from
state to state. With stamp duty rates hovering around 810% in
various states, India has perhaps one of the highest levels of
stamp duty. Some states even have double stamp incidence, first on
land and then on its development. In contrast the maximum rate
levied in most developed markets whether in Singapore or Europe is
in the range of 12 per cent. Even the National Housing and Habitat
Policy, 1998, recommended a stamp duty rate of 23 per cent. Most of
the methods to avoid registration are basically to avoid payment of
high stamp duty.Another fallout of high stamp duty rates is the
understatement of the proceeds of a sale. This is also linked to
payment of income tax and capital gains tax. When registration has
not been effected, a transfer is not deemed to have taken place and
hence capital gains tax can be totally avoided. Thus, the present
provisions in various laws and their poor implementation have led
to a situation where there is considerable financial loss to the
exchequer on account of understatement of sale proceeds,
non-registration and consequent non-payment of stamp duty and
avoidance of capital gains tax.IX.Rent Control ActRent legislation
in India has been in existence for a very long time. Rent control
by the government initially came as a temporary measure to protect
the exploitation of tenants by landlords after the Second World
War. However these rent control acts became almost a permanent
feature. In order to impose control over rent and unreasonable
eviction of tenants, rent control orders were issued in 1941. The
order was renewed periodically and ultimately Act XVII of 1960 came
into force. Rent Control Act is a State subject and the State
Government has the exclusive jurisdiction to legislate on the
subject.Rent legislation provides payment of fair rent to landlords
and protection of tenants against eviction. Besides, it effectively
allows the tenant to alienate rented property. Tenants occupying
properties since 1947 continue to pay rents fixed then, regardless
of inflation and the realty boom. Some of the adverse impacts of
the Rent Control Act are:
Negative effect on investment in housing for rental
purposes1.Withdrawal of existing housing stock from the rental
market. 2.Accelerated deterioration of the physical condition of
the housing stock. 3.Stagnation of municipal property tax revenue,
as it is based on rent. 4.Resultant deterioration in the provision
of civic services. 5.Increase in litigation between landlords and
tenants. The Rent Control Act, in fact, is the single most
important reason for the proliferation of slums in India by
creating a serious shortage of affordable housing for the low
income families. Low and middle-income families typically live in
rented accommodation all over the world and the need for such
accommodation in our clients will only increase as the economy
modernizes, labour mobility increases and urbanization takes place.
It is, therefore, necessary to increase the stock of rental
housing. Promotion of rental housing can have a significant impact
on the economy in many ways:1.It reduces shortage of housing for a
large Section of the population who cannot afford ownership
2.Housing construction being a labour-intensive activity,
investment in housing generates employment for both skilled and
unskilled labour. 3.Housing has backward and forward links with
many other industries. 4.Rental housing helps in stabilizing real
estate prices and checking speculation, thus making housing
affordable for the weaker sections. 5.It helps check proliferation
of slums. In the absence of rent control, dilapidated urban housing
would be periodically pulled down and replaced by modern apartment
buildings and other complexes leading to more rational use of prime
locations and also creating a continuous process of urban renewal.
This has not happened in India because rent control combined with
security of tenure provides no incentive for house owners to
undertake renovation work. This explains the run down appearance of
many of our buildings in prime locations, which gives India cities
a much more shabby appearance than their counter parts in other
developing countries. Repeal of the Rent Control Act could unleash
a construction boom as has happened in many major cities all over
the world. This is not only necessary to meet the growing demand
for housing but it would also have a highly favorable effect on
employment generation.In 1992, the Central Government proposed a
model rent control legislation, which was circulated in all states.
The model Act proposed modification of some of the existing
provisions regarding inheritance of tenancy and also defined a rent
level beyond which rent control could not apply. The Delhi Rent
Control Act based on this model law was passed in 1997. Punjab,
Gujarat, West Bengal, Karnataka, Madhya Pradesh, Maharashtra,
Rajasthan are few of those states that have adopted this model rent
control legislation.The Economic Administration Reforms Commission
and the National Commission on Urbanisation recommended reform of
the Rent Legislation in a way that balances the interests of both
landlord and the tenant and also stimulates future construction.
The Government of India then formulated a model rent control law
and recommended to the State Governments to undertake amendments to
existing rent control laws or enact new laws on the basis of the
model law. Thus the State Governments to decided to amend their
rent control laws to provide for regulation of rent and eviction in
the spirit of modern economy in a manner more suited to their
States, by adopting some provisions of the model rent control law
and some of the existing law of Rent Control in their own state.In
this context, I am going to discuss some of the provisions of
Karnataka Rent Control Act, 1999:Following are some of the features
of the said legislation.1.Its application is now restricted to
premises,(i)To any residential building the standard rent of which
exceeds rupees 3,500 per month in the areas covered by Karnataka
Municipal Corporation Act, 1976 and rupees 2,000 per month in other
areas and a commercial building having plinth area of not exceeding
14 square meter.(ii)Which are more than 15 years old.2.The Rent
Deed is required to be in writing and registered. 3.Tenancy is made
inheritable to a limited extent. 4.Provision is made,(a)for
collection of standard rent in relation to the investment on
property and for enhancement of rent, and for determination of
Standard Rent by Rent Controllers;(b)for registration of middlemen
and estate agents; (c)for adjudication of eviction application by
Rent Courts, with only Right of Revision, but no appeal;(d)for
immediate eviction of tenants of State or Central Government
Employees, members of Armed Forces, widows, handicapped persons and
persons above the age of 65 years under certain circumstances;
(e)to lay down Special Procedure for trial of cases before the
controllers and also the Courts so as to achieve quick disposals
and negotiated settlement.(f)to impose certain Special obligations
on the landlords and tenants, etc.How is standard rent
calculated?Standard rent is calculated on the basis of 10 per cent
per annum of the aggregate amount of the cost of construction and
the market price of the land on the date of commencement of
construction. The standard rent shall be enhanced according to the
provisions of the Third Schedule. (a)Cost of construction shall
include cost of electrical fittings, water pumps, overhead tanks,
storage tank and other fixtures; (b)In case any fixture referred to
in clause (a) is used by more than one occupant in a building, the
cost included in the cost of construction of the premises shall be
in proportion to the plinth area of the premises; (c)The cost of
construction shall be the actual amount spent on construction, and
where such amount cannot be ascertained the cost shall be
determined according to the scheduled rates of the State Public
Works Department. (d)The market price of the land shall be the
price at which the land was bought as determined from the
registered deed of sale, if construction commenced in the year of
registration. (e)The land component in the premises shall be the
plinth area of the building and the vacant land totalling 50 per
cent of the plinth area as apportioned. (f)Where a building has
more than one premises, the market value of the land for one
premises depends on the proportion of the plinth area of the
premises to the plinth area of the building. (g)Notwithstanding
anything contained in clauses (c) and (d) the cost of construction
and the market price of the land comprised in the premises
purchased from or allotted by the Government or a local authority
shall be the aggregate amount payable to such Government or the
local authority, provided the controller may, in order to arrive at
the cost of construction and the market price of the land, allow in
addition, subject to a maximum of 30 per cent of the amount payable
to the Government or local authority, any expenditure incurred for
improvement, additions or structural alteration in the premises.
Other charges(A)A tenant shall be liable to pay to the landlord,
besides the rent, the following charges not exceeding 15 per cent
of the rent for the amenities (air-conditioner, electrical heater,
water cooler, geyser, refrigerator, cooking range, furniture,
playground meant for exclusive use by the tenant, sun breakers and
usufructs. (B)Maintenance charges 10 per cent of the rent.
(C)Without prejudice to the landlords liability to pay the property
tax to the local authority, the pro rata property tax in relation
to the premises. In order to calculate the monthly charges payable
by the tenant to the landlord towards the property tax, the amount
paid or payable as property tax for the immediate preceding year or
the estimated tax payable shall form the basis. The landlord shall
be entitled to receive from the tenant charges for electricity or
water consumed or other charges levied by a local or other
authority, which is payable by the tenant. Third scheduleThe rent
enhancement under clause (a) of sub-section (1) of section 6 or
sub-section (1) of section 7 shall be calculated, compounding on a
yearly basis, with reference to the date of agreement in the case
of rental agreement and the date of commencement of construction in
the case of standard rent. Provided that the enhancement,
calculated till the commencement of this Act, shall be on the basis
of the size of the premises to specified percentages. Provided
further that the enhancement in the case of a tenancy entered into
before commencement of this Act shall be effected gradually in five
equal yearly instalments. ExplanationThe base calculation of rent
enhancement after the commencement of this Act shall be the rent
payable in the year as if the total enhancement of rent due at the
commencement of this Act came into effect immediately rather than
gradually over a five-year period, and such annual enhancement of
rent shall be payable in addition to the graduated enhancement.
Provided also that when the landlord is a widow, a disabled person
or a person aged 65 or more, the rent enhancement shall not be
spread over five years but come into force with immediate
effect.Obligations of a middlemen or estate agent (Section
20)1.Every middleman or estate agent shall register with the
Controller of the area. 2.A middleman or estate agent shall be
entitled to commission at prescribed rates. 3.Every middleman or
estate agent shall, within ten days from the last day of each
quarter of every calendar year, file returns in the prescribed form
to the Controller, giving details of transactions during the
quarter and the brokerage or commission received. 4.No middleman or
estate agent shall be liable to pay to his principal any rental
charges exceeding the amount he is entitled to receive under this
Act from the tenant. Restriction on sub-letting Where, at any time
before the date of application of Part V of the Karnataka Rent
Control Act, 1961 (Karnataka Act 32 of 1961), a tenant has sub-let
the whole or any part of the premises and the sub-tenant is, at the
commencement of this Act, in occupation of such premises, then,
notwithstanding the fact that the consent of the landlord was not
obtained, the premises shall be deemed to have been lawfully
sub-let. After the commencement of the Act no tenant shall without
the written consent of the landlord sub-let the whole or part of
the premises or transfer or assign his rights in the tenancy or in
any part thereof. Revision of rent in certain cases (Section
9)1.Where a landlord has at any time, before the commencement of
this Act with or without the approval of the tenant or after the
commencement of this Act with the written approval of the tenant
incurred expenditure for any improvement, addition or structural
alteration in the premises, not being expenditure on decoration or
tenantable repairs necessary or usual for such premises, and the
cost of that improvement, addition or alteration has not been taken
into account in determining the rent of the premises, the landlord
may lawfully increase the rent per year by an amount not exceeding
ten percent of such cost. 2.Where, after the rent of a premises has
been fixed under this Act, or agreed upon, as the case may be,
there has been a decrease, diminution or deterioration of
accommodation in such premises, the tenant may claim a reduction in
the rent.Notice of revision of rent (Section 10)1.Where a landlord
wishes to revise the rent of any premises under sub-section (1) of
section 9, he shall give the tenant a notice of his intention to
make the revision and, in so far as such revision is lawful under
this Act, it shall be due and recoverable from the date of
improvement, addition or structural alteration. 2.Every notice
under sub-section (1) shall be in writing signed by or on behalf of
the landlord and given in the manner provided in section 106 of the
Transfer of Property Act, 1882 (Central Act 4 of 1882). Unlawful
charges not to be claimed (Section 11)1.It shall not be lawful for
the tenant or any other person acting or purporting to act on
behalf of the tenant or a sub-tenant to claim or receive any
payment in consideration of the relinquishment, transfer or
assignment of his tenancy or sub-tenancy, as the case may be of any
premises. 2.Nothing in this section shall apply,(a)to any payment
made in pursuance of an agreement entered into before the
commencement of this Act; (b)to any payment made under an agreement
by any person to a landlord for the purpose of financing the
construction of the whole or part of any premises on the land
belonging to, or taken on lease by, the landlord if one of the
conditions of the agreement is that the landlord should let to that
person the whole or part of the premises when completed for the use
of that person or any member of his family but not exceeding the
amount of agreed rent for a period of five years, for the whole or
part of the premises to be let to such person. ExplanationFor the
purpose of clause (b) of this sub-section, a member of the family
of a person means, in the case of an un-divided Hindu family, any
member of the joint family of that person and in the case of any
other family, the husband, wife, son, daughter, father, mother,
brother, sister or any other relative dependent on that person.
X.State Laws Governing Real EstateWhile each state has its own
set of laws, which govern planned development, rules for
construction and Floor Area Ratio (FAR) or Floor Space Index (FSI)
and formation of societies and condominiums, two laws that exist in
every state, are the stamp duty and rent laws. The local real
estate transactions are governed by the rules framed by local
municipal bodies. For example, Karnataka has Bangalore Development
Authority governed by Bangalore Development Authority Act, 1976.
Similarly, Delhi has Delhi Development Act, 1957. The functions of
these authorities/local governing bodies can be divided into
categories:1.Planning Functions2.Development FunctionsThe planning
functions in brief involve the following: 1.Preparation of
development plan for the concerned city or area within its
jurisdiction2.Preparation of Scheme Plans. 3.Approval of
Development Plans for Group Housing and Layouts. 4.Approval of
building plans. The Development functions in brief involve the
following: 1.Planning and implementation of schemes to provide for
Residential sites, Commercial sites, Industrial sites, Civic
Amenity sites, Parks and playgrounds. 2.Construction of Commercial
complexes. 3.Construction of houses for Economically Weaker
Sections, Low Income Group, Middle Income Group, High Income Group.
4.Development of major infrastructure facilities. XI.The Consumer
Protection Act, 1986The Consumer Protection Act enables a person to
file a complaint against the builder for deficiency in service and
claim damages from him.For the purpose of the Consumer Protection
Act, the term Consumer has been defined separately for goods and
services.1. For the purpose of goods, a consumer means a person
belonging to the following categories:(i)One who buys or agrees to
buy any goods for a consideration that has been paid or promised or
partly paid and partly promised or under any system of deferred
payment.(ii)It includes any user of such goods other than the
person who actually buys goods and such use is made with the
approval of the purchaser.Note: A person is not a consumer if he
purchases goods for commercial or resale purposes However, the word
commercial does not include use by consumer of goods bought and
used by him exclusively for the purpose of earning his livelihood,
by means of self employment.2. For the purpose of services, a
consumer means a person belonging to the following categories:One
who hires or avails of any service or services for a consideration
that has been paid or promised or partly paid and partly promised
or under any system of deferred payment;It includes any beneficiary
of such service other than the one who actually hires or avails of
the service for consideration, and such services are availed with
the approval of such person.The construction work has been brought
under the term service w.e.f. 18 June 1993. Hence, any deficiency
in service on the part of the builder also will make him liable
under this Act.The objective Consumer Protection Act was to protect
interest of consumers regarding quality, potency, purity, standard
and price of goods. It provides a right to seek redress against
unfair trade practices and unscrupulous exploitation of
consumers.Relief available to the consumersDepending on the nature
of relief sought by the consumer and facts, the Forums may give
orders for one or more of the following relief:(a)Removal of
defects from the goods(b)Replacement of the goods(c)Refund of the
price paid(d)Award compensation for the loss or injury
suffered(e)Removal of defects or deficiencies in the
services(f)Discontinuance of unfair trade practices or restrictive
trade practices or direction not to repeat them;(g)Withdrawal of
the hazardous goods from being offered to sale or(h)Award for
adequate costs to partiesUnder the Consumer Protection Act, a
three-tier redressal forum has been set up at the national, state
and district levels. 1.National Consumer Disputes Redressal Forum
known as National Commission established by the Central Government
2.State Consumer Disputes Redressal Forum known as State Commission
established by the state government in the state 3.Consumer
Disputes Redressal Forum known as District Forum established by the
state government in each district.Procedure under Consumer
Protection Act Section 12(1) provides that a complaint in relation
to any goods sold or delivered or to be sold or delivered or any
service provided or agreed to be provided may be filed with
consumer forum.The Act envisages setting up of Consumer Disputes
Redressal Agency at local, i.e., district level, state level and
national (Central) level. District Forum has jurisdiction to decide
consumer disputes where value of goods or services and the
compensation claimed does not exceed Rs 20 lakh. State Commission
has jurisdiction to decide the cases where value of goods and
services plus compensation is over Rs 20 lakh but not over Rs 100
lakh. In addition, it decides appeals filed against order of
District Forum. National Commission (HQ at New Delhi) has original
jurisdiction where matter is over Rs 100 lakh. It also has
appellate jurisdiction over State Commission. Appeal against order
of State Commission can be filed only in case of original order by
State Commission i.e. when matter was over Rs 20 lakh. No appeal
can be filed to National Commission in case where State Commission
has passed order in appeal against original order of District
Forum. ERE-8
Appeal against order of National Commission lies with Supreme
Court only in matters where it exercises original jurisdiction,
i.e., when matter is over Rs 100 lakh. There is no provision of
appeal in cases where National Commission decides under its
appellate jurisdiction, i.e., when it decides appeal against order
of State Commission.Thus, in all cases, only one appeal has been
provided [However, revision petition to National Commission, which
is second appeal by back door, can be filed].
XII.The Arbitration and Conciliation Act, 1996The Arbitration
Act, 1996 that repealed the Arbitration Act, 1940 governs
arbitration over commercial disputes. The underlying idea is that
disputes may be settled between persons without recourse to a court
of law.Commercial contract usually contains an arbitration clause.
The Act defines Arbitration Agreement as a written agreement to
submit present or future differences to arbitration, whether an
arbitrator is named therein or not. Though arbitration must be in
writing, it need not be signed by the parties nor need it be
embodied in a formal document. It may be evidenced by a clause in a
contract, or in correspondence.Where there is an arbitration
agreement between the parties and if one of them takes recourse to
a court of law without a reference to arbitration, the Act empowers
the court to stay the proceedings to oblige the party to abide by
the arbitration agreement.A person who has a contractual capacity
may refer a dispute to arbitration. Disputes of a civil or
quasi-civil nature may be referred. So far as sale or purchase
contracts are concerned, all of them can be referred to
arbitration.The Arbitration Act contemplates two different types of
arbitration:1.By an arbitration agreement without the intervention
of the Court, the proceeding take place outside the court but the
court may be approached for filing the award and for a decree in
terms of the award. Most of the provisions of the Act pertain to
this form of arbitration. 2.Arbitration through Court where a suit
is pending. Arbitration Act has over-riding effectSection 5 of Act
clarifies that notwithstanding anything contained in any other law
for the time being in force, in matters governed by the Act, the
judicial authority can intervene only as provided in this Act and
not under any other Act.Unless a contrary intention is expressed,
an arbitration agreement is deemed to include the following
terms:i.That the reference shall be to a sole arbitrator. ii.If the
reference is to be made to an even number of arbitrators, they must
appoint an umpire not later than one month form their appointment.
iii.The arbitrators must make their award within four months of
their entering on the reference or after having been called upon to
act by a written notice from either party. The Court may, however,
extend the time. iv.If the arbitrators do not make an Award within
the time stated above or if they notify that they cannot agree, the
umpire must forthwith enter on the reference. v.The umpire must
make his award within two months or such extended time as the Court
may allow. vi.The parties to the reference and those claiming under
them must submit themselves for examination on oath by the
arbitrators or the umpire and must also produce all documents,
papers and other evidence which may be required. vii.Subject to the
provisions of the Act, the Award will be binding on the parties.
viii.The cost of the reference shall be at the discretion of the
arbitrators or umpire. Appointment of an Arbitratori.The parties
can agree on a procedure for appointing the arbitrator or
arbitrators. If they are unable to agree, each party will appoint
one arbitrator and the two appointed arbitrators will appoint the
third arbitrator who will act as a presiding arbitrator [Section
11(3)]. If one of the parties does not appoint an arbitrator within
30 days, or if two appointed arbitrators do not appoint third
arbitrator within 30 days, the party can request Chief Justice to
appoint an arbitrator [Section 11(4)]. ii.The Chief Justice can
authorise any person or institution to appoint an arbitrator. [Some
High Courts have authorised District Judge to appoint an
arbitrator]. In case of international commercial dispute, the
application for appointment of arbitrator has to be made to Chief
Justice of India. In case of other domestic disputes, application
has to be made to Chief Justice of High Court within whose
jurisdiction the parties are situated [Section 11(12)].When can the
appointment of an Arbitrator be challenged?An arbitrator is
expected to be independent and impartial. If there are some
circumstances due to which his independence or impartiality can be
challenged, he must disclose the circumstances before his
appointment [Section 12(1)]. Appointment of Arbitrator can be
challenged only if (a)Circumstances exist that give rise to
justifiable doubts as to his independence or impartiality (b)He
does not possess the qualifications agreed to by the parties
[Section 12(3)]. Appointment of arbitrator cannot be challenged on
any other ground. The challenge to appointment has to be decided by
the arbitrator himself. If he does not accept the challenge, the
proceedings can continue and the arbitrator can make the arbitral
award. However, in such case, application for setting aside
arbitral award can be made to Court. If the court agrees to the
challenge, the arbitral award can be set aside [Section 13(6)].
Thus, even if the arbitrator does not accept the challenge to his
appointment, the other party cannot stall further arbitration
proceedings by rushing to court. The arbitration can continue and
challenge can be made in Court only after arbitral award is
made.Power and duties of arbitratorUnless a contrary intention
appears in the arbitration agreement, the arbitrator (or umpire)
shall have the poweri.to administer oath to parties and witnesses
ii.to state a special case to the Court for opinion on a question
of law iii.to make his award conditional iv.to correct any clerical
error in the Award v.to administer interrogatories to the parties
vi.to decide on the cost of the reference and vii.to make an
interim award pending the final award. Dutiesi.He must enter on the
reference. ii.He must act judicially by appointing a proper time
and place for hearing parties. iii.He should not hear one party in
the absence of the other. iv.He must not receive information from
one side which is not disclosed to the other side v.He should be
fair to both the parties and should not refuse to hear either party
or shut out the evidence of either party vi.He should be impartial
and must not act as an agent or advocate of either party vii.He
must decide all matters referred to him for decision viii.He should
not exceed his authority ix.He must discharge his duties personally
and not delegate his task to any one else and x.He should make and
sign his award within the prescribed time. Conduct of Arbitral
ProceedingsThe Arbitral Tribunal should treat the parties equally
and each party should be given full opportunity to present his case
[Section 18]. The Arbitral Tribunal is not bound by Code of Civil
Procedure, 1908 or Indian Evidence Act, 1872 [Section 19(1)]. The
parties to arbitration are free to agree on the procedure to be
followed by the Arbitral Tribunal. If the parties do not agree to
the procedure, the procedure will be as determined by the arbitral
tribunal.Law of limitation applicableLimitation Act, 1963 is
applicable. For this purpose, date on which the aggrieved party
requests other party to refer the matter to arbitration shall be
considered. If on that date, the claim is barred under Limitation
Act, the arbitration cannot continue [Section 43(2)]. If
Arbitration award is set aside by Court, time spent in arbitration
will be excluded for purpose of Limitation Act [so that case in
court or fresh arbitration can start].Flexibility in respect of
procedure, place and languageArbitral Tribunal has full powers to
decide the procedure to be followed, unless parties agree on the
procedure to be followed [Section 19(3)]. The Tribunal also has
powers to determine the admissibility, relevance, materiality and
weight of any evidence [Section 19(4)]. Place of arbitration will
be decided by mutual agreement. However, if the parties do not
agree to the place, the same will be decided by tribunal [Section
20]. Similarly, language to be used in arbitral proceedings can be
mutually agreed. Otherwise, Arbitral Tribunal can decide [Section
22]. Submission of statement of claim and defenceThe claimant
should submit statement of claims, points of issue and relief or
remedy sought. The respondent shall state his defence in respect of
these particulars. All relevant documents must be submitted. Such
claim or defence can be amended or supplemented any time [Section
23]. Hearings and written proceedingsAfter submission of documents
and defence, unless the parties agree otherwise, the Arbitral
Tribunal can decide whether there will be oral hearing or
proceedings can be conducted on the basis of documents and other
materials. However, if one of the parties requests, the hearing
shall be oral. Sufficient advance notice of hearing should be given
to both the parties [Section 24]. [Thus, unless one party requests,
oral hearing is not compulsory].Settlement during arbitrationIt is
permissible for parties to arrive at mutual settlement even when
arbitration is proceeding. In fact, even the Tribunal can make
efforts to encourage mutual settlement. If parties settle the
dispute by mutual agreement, the arbitration shall be terminated.
However, if both parties and the Arbitral T