There are a few essential steps one needs to adhere to before a sale of a property is concluded. This will include the registration of the Sale Deed, the examination of the property in question, and affidavits on behalf of the seller that the property is unencumbered and that immunity and indemnity shall be provided in the event that any claim is brought as against the buyer. Of these, most of the onus is on the sellers to ensure that the property is free from all obligations on his end and that the title passes smoothly over to the buyer. The buyer, on the other hand, is at the mercy of the information the seller chooses to reveal regarding the status and encumbrances relevant to the transaction. Usually, the buyer is protected from any omission on the part of the seller, through Section 41 of the Transfer of Property Act, the transfer of property by an ostensible owner done in good faith by the buyer who has no way of verifying the truth about the ownership is protected and shall not be held voidable just on that basis.
This paper is concerned with a more relevant concern for the buyer: The responsibility of ensuring that the property that he purchases is free from encumbrances and that the title to the same is vested in the person posing as the owner of such property. It is important to note here that in the Transfer of Property Act, despite the good faith defences available to the buyer of the property, the caveat is always that the buyer has done everything in his power to verify the truth of the matter. This caveat is important since this forms the basis for dispute resolution in all matters involving the sale of immovable property where the defect in title is alleged by the buyer.
While it is important that the seller provides information in good faith, and that the buyer demands such information to be turned over to him, it is equally important that the buyer conducts his due diligence in concluding such a contract of sale. If there is any information that is relevant to the current transaction that the buyer is able to access within reasonable limits, then it becomes the onus of the buyer that such information is accessed and considered by the buyer. If the seller doesn’t provide such information as is easily verifiable by the buyer, it doesn’t become a ground for the voidability of the contract. This responsibility of the buyer is based on the ‘caveat emptor principle’ that the buyer should beware of the transaction he is entering into. While there is a mismatch in terms of the access to information between the parties, the public availability of title information has bridged the gap somewhat and made the burden on the buyer stricter in nature, as he will now have no claim against the seller, that the information was withheld from him.
Procedure for Verification: Practice Aspect
This paper would now spend some time elaborating the specifics of procedure in seeking title verification if one is a potential buyer. The Transfer of Property Act does not make any provisions for the procedure to verify title deeds and other such particulars. It merely requires that the buyer can verify them in a reasonable manner and proceed accordingly. In India, title documents are private property along with the property they represent, and the Registration Act 1908 only requires that the transfer deeds are placed with the registrar. Hence the only publicly available source of information about the validity of title is in the sale and transfer of deeds registered and placed with the registrars’ office. Other than this, there is a proposed land titling act, that seeks to collect all information pertinent to the title of a given property and make the chain of possession and the title a matter of public record.
For the time being, the buyer is required to place a request with the District Registrar’s office, and the full chain of titles in terms of the transfer history of the property can be verified by the buyer. This still won’t be enough, since the title itself will be in the hands of the seller, and the same will not be publicly available for the buyer to verify, hence despite the ability of a buyer to obtain information regarding the transactional history of the property the ultimate title document that will verify the possession of the land/ immovable property will still remain elusive. In the alternative, buyers are limited to the private enquiry and investigation through title firms. These are not backed by the government and the information procured might not be accurate, or in some cases less reliable. Yet, such information does play a vital role in determining litigation concerned with the transfer of immovable property.
Beyond this, the process of title verification begins when the buyer sends a receipt for receiving copies of the title deed of the seller and the original version of the title deed of the seller will be the basis for such investigation. When the title copies are received, then the buyer shall use them as a reference when he places a request at the Sub-registrar’s office, once such record is turned over, the responsibility on the part of the buyer is to verify the possession and the transfer details of that property for at least the last 30 years: This is because under Section 90 of the Indian Evidence Act there is a presumption of accuracy for all documents written and agreed upon beyond that period. This is the general procedure, and some states might have differing requirements. For instance, Maharashtra has a standard document known as the 7/12 document that is used to determine the antecedents of that property. At this stage, the buyer will also be able to access any lit-Pendens information at the sub-registrar’s office, and this should also be verified. In the event that the transaction is not registered, then the expectation is that the seller takes out a notice in local newspapers, or any such publicly accessible forum so that any contrary claims can be discovered.
Precedent and Application of Doctrine of Constructive Notice
These steps and this burden of proof is necessary because, in India, we follow the doctrine of Constructive notice. This means that, if a fact is reasonably within the means of a party to discover, then the legal presumption shall be that that party is aware of the same unless that party adduces clear evidence to the contrary that such information was withheld, or that it is not reasonably available to him. It is initially in the case of Royal British Bank v Turquand 1856 E&B 627that such a presumption was used by the court, even though this is a company law dispute, the ratio that such facts as are usually under the purview of a party are understood to be so unless there is a good reason that such is not the case.
In India, the doctrine was referenced by the Supreme Court in Ahmedabad Municipal Corporation V Haji Abdulghafur Haji Husseinbhai 1971 1 SCC 757where it was held that the doctrine of constructive notice under Section 3 of the Transfer of Property Act does not extend to inquiring about arrears of municipal taxes. This case lays down two important principles regarding constructive notice in property law: 1. That the presumption shall lie regarding information that is accessible by the buyer. 2. Such information that is reasonable to assume shall be inquired after in the regular course of events. The same has been carried over in all subsequent cases regarding the verification of title for immovable property.
This doctrine can be interpreted the other way around as well: That the buyer will bear full responsibility of doing his due diligence, and any fact that could have been discovered as a result of such due diligence, and has not been, shall be ascribed to the detriment of the buyer. As can be seen in the case of Sharfudin Valad Tajudin v Govind Bhikaju Bade (1904) ILR 27 Bom 294in the Bombay HC, the decision cantered around a non-registered prior transaction that encumbered the property in question. The court held that the doctrine ii the Transfer of Property Act will not apply to such unregistered transactions for which the buyer, despite the due diligence, will never be able to recover information. Further bolstered by the ratio in A.K. Lakshmipathy v Rai Sahib Pannalal Hiralal Lahoti 2006 (6) ALT 238, this case is the antithesis of the previous decision, that ‘the buyer needs to carry out this due diligence’ is a necessary component of a sale conveyance, which cannot be forgone unless there is a term in the contract guaranteeing marketable title over the property in question: held in concurrence with Madurai Chetty v babu Sahib AIR 1920 Mad 859.
A potential buyer is shielded from any fraudulent intentions on part of the sellers, as long as he himself is not knowledgeable and has not participated in the furtherance of the said fraudulent intention: Held in Kirtiben Hitendrabai Patel v State of Gujarat R/ CM/3598/2020, where the mere participation of the buyer in the conclusion of the transaction despite knowledge of fraudulent title has been held to void the contract and bring upon criminal charges.
Beyond these, the next most important matter of due diligence is the perusal of the actual title deeds of the seller in pendency of such sale agreement. Since the mere signing of the sale deed doesn’t equate transfer of possession which; as held in Suraj lamp Industries V State of Haryana (2012) 1 SCC 656.
It was then held in V. Sambandan v Punjab National Bank 2017 AIR CC 2266that in auctions and other transactions where the seller is not a direct owner of the property, or when information about the property is not publicly available, the buyer need not satisfy a higher burden than establish that a request for information regarding encumbrances has been submitted. At the same time, Shakuntala Bholla v Sheel Chand Jain (2009) 157 DLT 201 (Del.) held that since the title deed itself is not public domain, non-service of the requisite copy is a violation on the part of the seller and that in such a situation the doctrine of the constructive notice shall not apply in voidance of the transaction.
It was held that the knowledge of fraud voids the status of the buyer; per contra. The Delhi High Court held in Samrat Singh Nirula v State of NCT Of Delhi (2015) 220 DLT 523held that the buyer, despite access to title deeds will not be held responsible for detecting any inference that requires professional input to do the same (inference that buyer cannot be expected to detect a forgery in the title deed).
Through these cases, one can say that the following responsibilities fall on the buyer when entering into a sale deed for immovable property:
- The title deed in possession of the seller needs to be perused: Any discrepancy noted and reported back. Receipt for copies thereof must be sent.
- Examination of all transactions regarding the property going back at least 30 years needs to be examined. If not found, an affidavit for the same needs to be marked, and the seller needs to be requested for further documentation.
- Only those encumbrances that might reasonably be expected need be checked for, not every random attachment to the property.
- If any malpractice or fraud is brought to the notice of the buyer, he must back out of the transaction. Otherwise, he will be assumed party to the conspiracy to fraud.
- The technicalities such as forgery, or benami arrangements are usually assumed beyond the reasonable capacity of the buyer and need not be noted.
- If the entire transaction details are private: Then notice needs to be given, or private inquiry needs to be held, the buyer cannot sit by idly.
Public notices are an important part of any legal process to notify the general public of any important matters. General awareness about a legal proceeding is achieved through putting out advertisements in the newspapers hence it is also essential that public notice of the transfer of property is given in two local newspapers in order to invite claims and objections if any.