18 January 2025 - Legal Updates

1. Section 54 TPA | Possession of Property Under Agreement To sell Doesn’t Grant Ownership, Registration Required: Supreme Court

• Case- Indian Overseas Bank vs. M.A.S Subramanian & Ors.
• Date of Order- January 17, 2025
• Bench- Justice Abhay S Oka and Justice Ujjal Bhuyan

The Supreme Court of India has recently reaffirmed the principle that mere possession of property under an agreement to sell does not confer ownership unless a sale deed is duly registered in accordance with the Indian Registration Act, 1908. This ruling emphasizes the legal requirements for transferring ownership of immovable property.

The court referenced Section 54 of the Transfer of Property Act, 1882, which states that an agreement for sale does not transfer title or create any interest in the property. The only valid method for selling immovable property worth more than Rs. 100 is through a registered sale deed13.

Case Background: The dispute arose from an agreement to sell executed by the late Shri M.A. Shanmugam (the property's owner) in favor of a company, which involved a transfer of shares. The company had possession of the property as part performance of this contract. However, after Shanmugam's death, his legal heirs executed a sale deed in favor of another party, not the company1.

NCLAT's Decision: The National Company Law Appellate Tribunal (NCLAT) initially ruled that the sale deed executed by Shanmugam's heirs was not binding on the company due to its possession based on part performance of the contract1.

Supreme Court's Ruling: The Supreme Court set aside the NCLAT's decision, stating that since Shanmugam did not execute a registered sale deed in favor of the company, he remained the legal owner. The court noted that without a registered sale deed, ownership could not be transferred, and thus, NCLAT erred in its judgment13.

Conclusion: The Supreme Court clarified that possession alone does not equate to ownership and reiterated that the registration of a sale deed is essential to effectuate a transfer of ownership for immovable properties valued over Rs. 100. 

Section 54 of TPA-

Section 54 of the Transfer of Property Act, 1882, defines the concept of "sale" in relation to immovable property in India. Here are the key points regarding this section:

Definition of Sale

Transfer of Ownership: Section 54 states that a "sale" is the transfer of ownership of immovable property in exchange for a price paid, promised, or partially paid and partially promised. This implies an absolute transfer of rights from the seller to the buyer.

Key Elements of a Valid Sale

1. Competent Parties: Both the buyer and seller must be legally competent to enter into a contract, meaning they should be of legal age, sound mind, and not disqualified by law.
2. Monetary Consideration: The transfer must involve monetary consideration; a sale cannot occur without payment. If no money is exchanged, it may be categorized as a gift or exchange instead.
3. Transfer of Ownership: The sale involves the actual transfer of ownership rights, which cannot occur merely through possession without executing a formal sale deed.
4. Delivery of Property: The physical or symbolic delivery of the property is essential for completing the sale process34.

Legal Framework

The section emphasizes that only transferable immovable property can be sold, and it distinguishes between an agreement to sell and an actual sale. An agreement to sell does not confer ownership unless formalized through a registered sale deed12.

Importance

Section 54 serves as a foundational legal framework for property transactions in India, ensuring clarity and legality in the sale process while protecting the rights of both buyers and sellers.

2. Section 34 IPC | Common Intention and Pre-Meeting Of Minds Can Take Place At the Spur of Moment: Supreme Court

• Case- The State of Karnataka vs. Battegowda & Ors.
• Date of Order- January 17, 2025
• Bench- Justice Sudhanshu Dhulia and Justice Prashant Kumar Mishra

The Supreme Court recently addressed the applicability of Section 34 of the Indian Penal Code, 1860 [Section 3(5) of BNS, 2023]in a case involving a property dispute that escalated into violence. Here are the key facts of the case:

Incident Overview

Background: The altercation arose from a property dispute between the complainant and the accused persons.

Assault: During an attempt to resolve the matter, accused no. 1 engaged with the complainant, while accused no. 3 (the son of accused no. 1) stabbed the complainant with a knife. Accused no. 2 (another son) was found to be carrying a chopper.

Legal Proceedings

Trial Court: The trial court convicted all accused persons for causing grievous hurt with dangerous weapons.

High Court Ruling: The High Court acquitted accused no. 1 due to insufficient evidence regarding his involvement in restraining the complainant. Accused no. 2's conviction was reduced to voluntarily causing hurt, as he only inflicted minor injuries.

Supreme Court's Judgment

Appeal by State: The State appealed against the High Court's decision.

Common Intention: The Supreme Court emphasized that common intention can arise spontaneously during an incident, without prior planning or agreement among co-accused.

Assessment of Involvement: The court noted that both accused no. 2 and accused no. 3 acted together during the assault, with both armed with deadly weapons.

Conclusion: The Supreme Court ruled that the High Court erred in its assessment and held that Section 34 IPC was applicable, leading to the conviction of accused no. 2 for grievous hurt, aligning his sentence with that of accused no. 3.

Implications

This ruling clarifies that common intention under Section 34 IPC does not require premeditated agreement and can be established based on actions taken during the commission of a crime.

Section 34 of IPC-

Section 34 of the Indian Penal Code (IPC) addresses the concept of joint liability in criminal acts committed by multiple individuals with a common intention. Here are the key aspects of this section:

Definition

Joint Liability: Section 34 states that when a criminal act is executed by several persons in furtherance of a common intention, each individual involved is liable for that act as if it were done solely by them. This means that all participants can be held equally responsible for the crime.

Key Features

1. Common Intention: There must be a shared purpose among the accused to commit the criminal act. This intention can arise spontaneously during the incident and does not require prior planning or conspiracy.
2. No Specific Offense: Section 34 does not define a specific offense; rather, it serves as a rule of evidence to establish joint culpability when multiple individuals are involved in committing a crime.
3. Active Participation: While every accused does not need to participate in every aspect of the crime, there must be active involvement in the overall commission of the act.
4. Application: The section is particularly useful in cases where it is difficult to ascertain the individual roles of participants in a criminal act, allowing for accountability based on collective action.
5. Judicial Interpretation: Courts have interpreted Section 34 to mean that if one person commits an act in furtherance of a common intention, all co-accused can be held liable for that act, even if their individual contributions vary.

Importance

• Section 34 IPC is essential in addressing scenarios where multiple individuals engage in criminal behavior together, ensuring that all are held accountable for their collective actions and intentions. It reinforces the principle that shared responsibility exists when individuals act together towards a common goal in committing a crime.
• This provision helps maintain justice by preventing individuals from escaping liability simply because their specific role in the crime cannot be clearly delineated.

3. Section 141 NI Act | Resigned Director Not Liable For Cheque Issued By Company After His Resignation: Supreme Court

• Case- Adhiraj Singh vs. Yograj Singh and Others
• Date of Order- January 16, 2025
• Bench- Justice JK Maheshwari and Justice Rajesh Bindal

The Supreme Court has clarified the application of Section 141 of the Negotiable Instruments Act, 1882 (NI Act), in a recent case concerning the liability of a director for a cheque issued after their resignation from a company. Here are the key facts:

Case Background

Parties Involved: The appellant, a former director of a company, faced legal action for the dishonor of cheques issued by the company.

Resignation: The appellant resigned from his directorship on June 21, 2019, with his resignation deemed effective from that date. The cheques in question were issued by the company on July 12, 2019, after his resignation.

Legal Proceedings

Trial Court: Initially, the trial court ruled against the appellant, leading to an appeal.

High Court Ruling: The Himachal Pradesh High Court refused to quash the case against the appellant, asserting that he could still be held liable due to his prior position as a director when the debt arose.

Supreme Court's Judgment

Liability under Section 141: The Supreme Court stated that for a director to be held liable under Section 141 of the NI Act, they must be in charge of and responsible for the company's business at the time the offence was committed.

Facts of Resignation: The court emphasized that since the appellant had resigned before the issuance of the cheques and was not connected with the company at that time, he could not be held responsible for its affairs.

Rejection of Respondent's Argument: The court found that the respondents' reliance on previous case law (Malva Cotton) was misplaced because in that case, the resignation was submitted after cheque issuance, unlike in this instance.

Conclusion

The Supreme Court allowed the appeal and quashed the proceedings against the appellant, reinforcing that a resigned director cannot be held liable for cheques issued by a company post-resignation. This ruling underscores the importance of timing regarding a director's liability under Section 141 of the NI Act.

Section 141 of NI Act-

Section 141 of the Negotiable Instruments Act, 1881, addresses the concept of vicarious liability for companies in cases of cheque dishonor. Here are the key points regarding this section:

Overview

Vicarious Liability: Section 141 establishes that if a company commits an offence under the Act, specifically related to cheque dishonor as outlined in Section 138, individuals associated with the company can also be held liable. This includes directors, managers, secretaries, and other officers who were in charge of and responsible for the company's business at the time the offence was committed.

Key Provisions

1. Liability of Individuals:

Section 141(1): States that any person who, at the time of the offence, was in charge of and responsible for the conduct of the company's business shall be deemed guilty of the offence. This means that such individuals can be prosecuted along with the company for cheque dishonor.

Defenses: Individuals can defend themselves by proving that they had no knowledge of the offence or exercised due diligence to prevent its occurrence.

2. Consent or Connivance:

Section 141(2): Extends liability to those whose consent, connivance, or neglect led to the commission of the offence. This provision ensures that not only those directly involved but also those who may have indirectly facilitated the wrongdoing can be held accountable.

3. Exemptions: Certain individuals, such as nominated directors or government employees acting in their official capacity, may be exempt from liability under this section.

Practical Implications

Accountability: Section 141 is crucial for holding individuals accountable within a corporate structure, ensuring that they cannot evade responsibility simply due to their position within a company.

Legal Requirement: When filing a complaint under this section, it is essential to specify the role played by each accused individual in relation to the offence.

Conclusion

Section 141 of the Negotiable Instruments Act serves as an important legal framework for addressing offences related to cheque dishonor by holding both companies and their responsible individuals accountable. It emphasizes the need for due diligence and transparency in corporate governance.