RESEARCH QUESTION
If an immovable property is sold by ‘X’ to ‘Y’ and later on, encumbrance(s) is/are discovered. What are the remedies available in such a case? Can criminal liability, be imputed upon ‘X’?
Solution:
With respect to the question at hand pertaining to the remedies when an encumbrance has been discovered after the sale has been made, the seller’s duty to discharge an encumbrance may be referred to after completion of the covenant for title implied by section 55(2).
If the buyer has to discharge such an encumbrance owing to the seller’s default, the liability of seller is that, as provided under section 69, Indian Contract Act, 1872, for the moneys paid by the buyer to clear his title (reliance may be placed upon Nathu Khan v. Burtonath (1922) 24 Bom LR 571; Manishanker v. Ramkrishna (1904) 6 Bom LR 832; Bhagwati v Banarasi Das (1928) ILR 50 All 371; Ganpat Ranglal v. Mangilal Hiralal, AIR 1962 MP 144. It is to be noted that the liability imposed upon the seller by section 55(1)(g), TPA is collateral to the contract and maybe enforced after completion. It results from the duty under section 55(1)(e), TPA, to take care of the property pending completion.
However, when a buyer has agreed to discharge the encumbrance, he cannot claim to be reimbursement by the seller (reliance may be placed upon R Muninarayana v C P Chimanswamy, AIR 1952 Mys 120).
Further, under section 13 of the Specific Relief Act, 1963, the buyer has a right to compel the seller to discharge the encumbrance. The relevant portion of section 13, Specific Relief Act, 1963 is reproduced as under:
“where the vendor professes to sell unencumbered property, but the property is mortgaged for an amount not exceeding the purchase money and the vendor has in fact only a right to redeem it, the purchaser may compel him to redeem the mortgage and to obtain a valid discharge, and, where necessary, also a conveyance from the mortgagee;”
Furthermore, if the seller has not paid off the encumbrance, the buyer may do so himself under section 55(5)(b), and set of the amount against the price.
In a case where the buyer is dispossessed by the encumbrancer, he may sue for damages on the implied covenant for title recognised in section 55(2), and in this sub-section (reliance may be placed upon Gobardhan Das v Afzal Husain, 138 IC 495)
In a case where the encumbrance is a common charge on the property sold and other properties, the buyer may under section 56, insist on its being discharged out of the other properties.
If, however, the buyer sues for specific performance of the contract for sale, the court may direct the seller to discharge the encumbrance before he is paid the price (reliance may be placed upon Kathamuthu v Subramaniam, (1926) 50 Mad LJ 228
It is to be noted that it is immaterial that the buyer was aware of the encumbrance when he contracted to buy. (reliance may be placed upon Ram Chunder Dutt v. Dwarkanath, (1889) ILR 16 Cal 330; Basaraddi Sheikh v. Enajaddi, (1898) ILR 25 Cal 298; Subbaroya v Rajagopala, (1915) ILR 38 Mad 887; Vellayappa Rowthen v. Bava Rowthen, 29 IC 747; Mahomed Ali v. Venkatapathi, (1920) 39 Mad LJ 449; Chendrayya v. Hanumanyya, 98 IC 450; Lakhpat Kuer v Durg Prasad (1929) ILR 8 Pat 432. In such a case, there is no duty of disclosure by the seller under section 55(1)(a) and, therefore, no fraud, but the statutory liability does not depend upon proof of fraud. (reliance may be placed upon Basaraddi Sheikh v Enajaddin, (1898) ILR 25 Cal 298).
Hence, pertaining to the part of the question concerning the criminal liability when an encumbrance is discovered, after the property has been transferred,when there are other remedies available, there shall be no criminal liability to be imputed upon Mr. ‘X’ and the same may be discharged in any of the ways mentioned above.
Reference: Mulla, ‘Transfer of Property Act, 1882, 14th Ed., 2022