Saturday, 29 November 2014

Third party rights over profits from property

Claimants can get maintenance under Section 39 of the Transfer of Property Act.

Most of the times we hear of cases where the wife, children or dependent family members of a person make claims of maintenance out of the property owned by an individual. The dispute between the members of a family aggravates when the owner of such property transfers his property in favour of a third party.

The answer to this is embodied under Section 39 of Transfer of Property Act, 1882 (TPA). This section is applicable only in cases where a third party has the right to receive amounts for maintenance or advancement or marriage purposes. It may be noted that the right of a person to receive maintenance, advancement amounts or marriage expenses out of profits of immovable property is created when a sum is fixed and charge upon property is created either by a decree of court or by an agreement or by law.

Let us take an illustration of this situation.

A is married to B. After few years of marriage A and B separate. The terms of separation as agreed between them mention that A, out of his specific immovable property, will pay for maintenance of B. However, in order to avoid paying maintenance to B, A transfers his property to his friend C by way of gift. C is not aware of the claims of B. Here, the question is: what rights and claims does B have against A and C? And what are the liabilities of C in respect of claims of B?

As per Section 39 of TPA where the transfer of property in favour of a transferee (ie C) is made out of gratitude, ie no consideration is paid by transferee to the transferor (ie A), then third party (ie B) rights can be enforced against transferee (ie C) even though the transferee (ie C) may not have prior notice of the same.

Therefore, in the above illustration, B can enforce her rights to receive maintenance out of the profits of a property even when the property has been transferred by A to C. Also, absence of notice of B’s rights in the property cannot be taken as ground by C to deny B’s rights/entitlements.

However, this Section protects a bona-fide buyer who has purchased the property for consideration. This means that if the property is transferred to a person for consideration and that person does not have notice of any third party rights then such rights cannot be enforced against the buyer.

For example, if in the above illustration A transfers the property to C by way of sale for which consideration is paid by C to A, then in that case B may not be able to enforce her claim/right against C, if C has no notice of B’s claim/right.

The term notice used in this section is generally interpreted in broad connotation. It includes within its meaning knowledge and awareness of third party rights. A person having knowledge of existing rights of third party can be considered to be aware of the deal. Notice could be either expressed or implied, but where the rights are conferred by law, then same is presumed to be known by all.

However, this Section does not stop or prevent a person from transferring his property. A person with immovable property is free to transfer his property to anyone. A person may also transfer his immovable property where a third party is entitled to receive maintenance from the profits arising out of such property. However, such transfer will not extinguish the rights of the third party in the property and these rights can be enforced in accordance with Section 39 of TPA.

HT Estates, Nov 27, 2014, Page 06

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