PRESUMPTION OF CONSTRUCTIVE NOTICE CONCERNING THE TRANSFER OF PROPERTY ACT, 1882.

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PRESUMPTION OF CONSTRUCTIVE NOTICE CONCERNING THE TRANSFER OF PROPERTY ACT, 1882.

 

PRESUMPTION OF CONSTRUCTIVE NOTICE CONCERNING THE TRANSFER OF PROPERTY ACT, 1882.

 

Dear Friends,

As you are aware that there are many malpractices are going on in real estate sector. Some of these are defects in tile, non-completion of projects within time period , charging of more charges than specified, non-disclosure of all information related to projects , sale of same flat/galas to more than one person. These are held due to lacuna in legislature governing the real estate sector.

The introduction of RERA, 2016 to some extent reduces these malpractices and provide a platform to the customers to resolve their complaints and imposition of penalties and fines on the developers/ builders.

The Section 3 of the Transfer of Property Act, 1882 asserts under what circumstances a person is said to have a knowledge of fact or notice. Notice is mentioned in section 39, 40, 41, 53 and 53(A) of Transfer of Property Act. The legal notion of notice describes a requirement that a party in dispute must be mindful of the legal process and the knowledge of a fact affecting their rights, liabilities and duties. A person may himself have actual notice of a fact or he may have constructive notice or notice may be attributed to him when knowledge of the fact has been acquired by his agent during business transacted by the agent of him.

CLASSIFICATION OF NOTICE

There are two types of notice under the Transfer of Property Act, 1882 namely, Express or Actual Notice and Constructive Notice. To understand the concept of notice we need to elaborately discuss these two types of notice.

1.   EXPRESS OR ACTUAL NOTICE

When a person receives the actual knowledge of a fact or a definite information regarding a legal dispute, it is called actual or express notice. Vague rumour and hearsay are not regarded as an actual notice.

 

WHAT ARE THE ESSENTIAL CONDITIONS FOR AN ACTUAL NOTICE?

The following are the essential conditions to constitute an actual or express notice:

  1. There must be a definite and direct information or actual knowledge of a fact.
  2. A person pertaining to the transaction can only have an actual knowledge.
  3. The actual knowledge must be linked with the transaction.

 

Illustration: X sells his land to Y. X and Y have a contract. Y gives X 50% of the money and contracted to give the rest after registration of the instrument. Now, X again sells the same land to Z. If Z knows about the previous contract between X and Y, then Y can go against Z in the court. 

2.   CONSTRUCTIVE NOTICE

Constructive notice is the knowledge of those particulars facts which a court ascribes on a party. The legal presumption regarding constructive notice is that a person should have known a fact as if he actually knows it. If the situations indicate that a man of ordinary prudence ought to have known a precise fact pertaining to the transaction of transfer then that person will be deemed to know it. This notice works like a provision of law.

In the famous case of Plumb V Fluitt [1791] it was upheld by the court that ‘Constructive notice is itself an evidence of notice.’ The court will not allow any person to disprove it.

 

Wigram V C determined the cases of constructive notice into 2 classes in the case of Jones V Smith [1841] namely,

 

  1. Cases in which the party alleged has had actual notice regarding the fact that the property in dispute is somehow affected;

 

  1. Cases in which the court has been persuaded from evidence on record before it that the party alleged has restrain himself from inquiring to avoid the notice.

WHAT ARE THE ESSENTIAL CONDITIONS FOR CONSTRUCTIVE NOTICE?

In respect of registered transaction, the followings are the essential conditions for constructive notice:

  1. The instrument has to be registered in consonance with the Registration Act, 1908.
  2. The instrument has to be duly entered or filed in books kept under section 51 of the Registration Act, 1908.
  3. The particulars pertaining to the transaction to which the instrument relates have to be correctly entered in the indexes kept under section 55 of the Registration Act, 1908.

LEGAL PRESUMPTION OF CONSTRUCTIVE NOTICE:

In the following circumstances the legal presumption of constructive notice arises –

  1. Willful abstention from an inquiry or search;
  2. Gross negligence;
  3. Document compulsorily registrable;
  4. Actual possession;
  5. Notice to an agent.

 

  1. WILLFUL ABSTENTION FROM AN INQUIRY OR SEARCH

A person has notice if it was his responsibility to make an enquiry of if there was something to put him on an enquiry which if he pursued, he would have learnt the truth. The words ‘will abstention from an inquiry or search’ in section 3 means an abstention from inquiry or search as would show want of bonafides and a mere omission to make inquiries cannot be regarded as sufficient to constitute constructive notice within the meaning of the section.

Illustration: A sells property to B. A got the property by partition and presumption right was reserved in the partition deed. It is B’s duty to check the partition deed before purchasing the property, if he abstains himself from enquiring about the partition deed to avoid competition then it is a wilful abstention.

2.   GROSS NEGLIGENCE

Gross negligence does not mean mere carelessness, it is a degree of negligence so gross in nature that a court of law may treat it as a proof of fraud. If there exists mental indifference to obvious risks then it is a gross carelessness or negligence. What would be gross negligence in one case would not be so in another. It all depends on the man’s knowledge and the means of information which lay to his hand.

The main difference between wilful abstention and gross negligence is that in latter the intention is not wrong or fraudulent.

Illustration: X purchases a property within the municipality. X did not check whether any municipal taxes pertaining to the property were in arrears. As X failed to check before purchasing it amount to gross negligence.

 

3.   REGISTRATION AS NOTICE

Registration is considered as constructive notice when the document is compulsorily registrable. The amending act of 1929 made it clear that registration of an instrument relating to immovable property amounts to notice of the instrument from the date of registration.

Registration is notice only in the following circumstances:

  1. When the instrument is required by law to be registered;
  2. Registration is notice to a subsequent transferee. Prior transferee is not affected by notice of subsequent transactions from the registration of the same;
  • The instrument must have been registered in the manner prescribed by the Registration Act, 1908.

 

4.   POSSESSION AS NOTICE

If someone possesses an immovable property, then the purchaser must know that someone is exercising right to possession and enjoyment on that property. In other words, the person dealing with any immovable property shall be deemed to have notice of the title of any person who, temporarily is in actual possession thereof. The possession must be actual.

Illustration: A sells his property to B and then A requested B to let him live in the property as long as A finds a new place to live. Registration was not done. A sells the same property to C. As B’s possession is not actual so it is not a constructive notice to C.

5.   NOTICE TO AGENT

The general principle is that a person has notice of fact when information of the fact is given to or obtained by his agent. The knowledge of the agent is regared the knowledge of the principal. This general principle has certain limitations.

Notice to agent is notice to principal in the following circumstances:

  1. The agent must have actual knowledge of a fact.
  2. The agent must have obtained the knowledge during agency.
  3. The agent must have appointed for particular transaction or business.
  4. The knowledge of fact must be material to that particular transaction or business.
  5. The agent must obtain the knowledge in a good faith as a reasonable prudent man.

 

EXCEPTIONS TO THE PRINCIPLE:

i)    If the agent fraudulently conceals a knowledge of fact with wrongful intention then his knowledge will not amount to principal’s knowledge.

 

ii)   If there is a third party who is involved with agent in the fraud and the third party knows that agent conceals the fact with a wrongful intention then agent’s knowledge will not amount to principal’s knowledge.

 

LETS’ CONSIDER SOME JUDICIAL DECISION TO UNDERSTAND PRESUMPTION OF CONSTRUCTIVE NOTICE

  1. IN AHMEDABAD MUNICIPAL CORPORATION V HAJI ABDUL GAFOOR (AIR 1971 SC 1201)
  2. i) In this case, a person was declared bankrupt, and his assets were entrusted to the court-appointed official receiver.
  3. ii) The municipality sent a charge to the receiver regarding taxes. He asked the court for permission to sell the land to pay the taxes, and the court granted it.

iii) After that, neither the Receiver nor the municipality pursued the situation in terms of tax payment. As a result of lapses on the part of the receiver, who was in control of the property, the municipal taxes for the previous five years remained unpaid.

  1. iv) A buyer at an auction purchased the property without being aware of the municipal charge. The buyer inquired about the charges payable on the property with the receiver, but no information concerning the tax arrears was provided.
  2. v) The question arose as to whether someone can be regarded to be aware of past municipal tax arrears.
  3. vi) The municipality (seeking attachment of the property in question) argued that there is no warranty of title in auction purchases, and the purchaser accepts the property subject to all title problems. In this case, the caveat emptor principle applies. However, because this was a case involving a judgment debtor, this did not apply in here.

vii) The matter was taken to the Supreme Court on appeal.

The Supreme Court observed as follows:

1) Constructive notice is determined by the facts and circumstances of each case. In the case of municipal taxes, there is no presumption of constructive notice.

In this case the Apex Court overturn its own decision in  Naval Kishore v Municipal Board of Agra [ (1943) ALJ 53]in which held that all intending purchasers (in a municipal area where the property is subject to a municipal tax) must inquire about the amount of tax due (i.e., past arrears) and that if they fail to do so, constructive notice will be imputed to them.

  1. Naval Kishore v Municipal Board of Agra [ (1943) ALJ 53];

In this case the Allahabad High Court held that- all intending purchasers have a duty to enquire about amount of tax due and if they fail to do so, constructive notice shall be imputed on them.

The above decision has been overruled by the Apex Court and  held that question of Constructive Notice depends upon the facts and circumtances of each case. The question to be asked here is not whether the person had the means to find out, but whether the given circumtancesthere was a duty to find out. Therefore , there is no presumption of Constructive Notice with regard to Municipal Taxes and each case has to be decided on its own.

  1. The court referenced the ruling in Roop Chand Jain’s case, which found that in the lack of specific intimation from the municipality, no intending purchaser is obligated to conclude that taxes on the property were not paid in the ordinary course.
  2. i) Willful abstention or severe carelessness are the situations under which a deeming fiction is attributed to a party.
  3. ii) The issue is whether there was a responsibility to find out under the specific circumstances.

Because the issue of constructive notice must be considered from an equitable standpoint, the municipality was significantly more irresponsible than the plaintiff in this case.

As a result, no constructive notice can be served on the plaintiff.

  1. Mustafa v Haji Md, Isa AIR 1987 PAT.5The concept of constructive notice does not apply when the person claiming the property based on a prior agreement is only in possession of a limited portion of the property.
  2. H.N Narayanaswamy Naidu v Deveeramma AIR 1981 Kant.93  The principles of notice and constructive notice apply when the plaintiff was in actual possession of the property and completed major repairs at his expense.
  3. Suleman Khan v Punjab Province [1953] PLR 919

The onus of proving want of notice is on the transferee.

  1. Nagendra Chandra v Parameswar Ray 9 DLR 476

Notice of registration of sale-deed is recognized as constructive notice. This presumption can be rebutted by producing proof that there was no such notice.

  1. Daniels v Davison [1919] 46 IA 250

Where land is in the occupation of someone other than vendor, the fact of the occupation gives the purchaser constructive notice of any rights of the occupying tenant.

  1. Ranjital v Municipal Board of Lucknow [1936] 12 Luck. 353

A person purchasing property within the municipal limits was bound to inquire whether any municipal taxes in respect of the property are in arrears. If he did not care to do so, it would amount to gross negligence.

  1. Rai Chand v Dattatraya [1964] AIR Bom. 1 (DB)

In some cases, by legal fiction constructive notice may be imputed to the party but in the present case the particulars relating to transaction have not been correctly entered in the indexes kept under section 55 of the TPA, 1882, which is one of the essential conditions of constructive notice so, it cannot be imputed to the plaintiff.

CONCLUSION:

From above judicial decisions it is clear that the presumption of constructive notice depends upon the facts and circumstances of each case. The fact will be decided on the basis that purchaser has duty of inquiry into subject matter or not and hence the Principal of Constructive Notice will not be applicable in case of outstanding Municipal Taxes.

DISCLAIMER the article presented here is only for sharing information and knowledge with the readers. The views are personal. In case of necessity do consult with legal advisors.

Sources:

  1. https://lawlegum.com/notice-section-3-of-trasfer-of-property/
  2. https://www.juscorpus.com/presumption-of-constructive-notice-concerning-the-transfer-of-property-act/#_ftnref1

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